TWENTYFOUR
SELECT MONTHLY INCOME FUND LIMITED
LEI:
549300P9Q5O2B3RDNF78
(Classified
Regulated Information, under DTR 6 Annex 1 section 1.1)
Annual
Report and Audited Financial Statements
For the
year ended 30 September
2023
The
Directors of TwentyFour Select Monthly Income Fund Limited (the
“Company”) announce the results for the year ended 30 September 2023. The Report will shortly be
available via the Company's Portfolio Manager’s website
www.twentyfouram.com and will be available for inspection online at
www.morningstar.co.uk/uk/NSM.
FINANCIAL
AND OPERATIONAL HIGHLIGHTS
-
NAV per share of 75.44 pence (FYE 30/09/22: 69.99 pence)
-
Total Net Assets of £181.69
million (FYE 30/09/22: £151.33 million)
-
Dividends declared for the year
of 7.37 pence per share (FYE
30/09/22: 6.39 pence per
share)
-
Total Return of 17.54% (FYE
30/09/22: -18.94%)
Eoin Walsh, Partner & Portfolio Manager at
TwentyFour Asset Management, said: “The rising
rate environment resulting from global inflation has enabled us to
position the TwentyFour Select Monthly Income Fund Limited
positively over the period. The strong NAV performance coupled with
a focus on the credit quality of the portfolio positions has left
the Company well placed for the next stage of the
cycle.”
Ashley Paxton, Chairman of TwentyFour Select
Monthly Income Fund, said: “We are very
pleased to present the audited financial statements for the
Company, which demonstrate how the TwentyFour Select Monthly Income
Fund Limited has delivered a Total Return of 17.54%, including
dividends declared of 7.37 pence per
share. We are also pleased to reflect on the share activity for the
period, having traded at or around NAV (within a c4.5% tolerance
above and below NAV) throughout the year to 30 September 2023, at a time where the majority
of the investment company market saw significant
discounts.”
FINANCIAL
HIGHLIGHTS
Net Asset
Value per share
|
|
As at
30 September 2023
|
As at
30 September 2022
|
75.44p
|
69.99p
|
|
|
Share
price
|
|
As at
30 September 2023
|
As at
30 September 2022
|
75.60p
|
73.00p
|
|
|
Total Net
Assets
|
|
As at
30 September 2023
|
As at
30 September 2022
|
£181.69
million
|
£151.33
million
|
|
|
Total
return
|
|
For
the year ended 30 September 2023
|
For
the year ended 30 September 2022
|
17.54%
|
-18.94%
|
|
|
Dividends
declared
|
|
For
the year ended 30 September 2023
|
For
the year ended 30 September 2022
|
7.37p
|
6.39p
|
|
|
Average
premium
|
|
For
the year ended 30 September 2023
|
For
the year ended 30 September 2022
|
0.03%
|
3.38%
|
|
|
Shares in
issue
|
|
As at
30 September 2023
|
As at
30 September 2022
|
240.82
million
|
216.21
million
|
|
|
Portfolio
performance
|
|
For
the year ended 30 September 2023
|
For
the year ended 30 September 2022
|
12.26%
|
-18.05%
|
|
|
Number of
positions in portfolio
|
|
As at
30 September 2023
|
As at
30 September 2022
|
161
|
144
|
Definition of the
above measures can be found in the Glossary of Terms and
Alternative Performance Measures.
As at
12 December 2023, the premium had
moved to 0.38%. The estimated NAV per share and share price stood
at 76.31p and 76.60p, respectively.
Results are
discussed further in the Directors’ Report.
Ongoing
Charges
Ongoing charges
have been calculated in accordance with the Association of
Investment Companies (the "AIC") recommended methodology. The
ongoing charges for the year ended 30
September 2023 were 1.26% (30
September 2022: 1.20%) on an annualised basis.
SUMMARY
INFORMATION
The
Company
TwentyFour Select
Monthly Income Fund Limited (the “Company”) was incorporated with
limited liability in Guernsey, as
a closed-ended investment company on 12
February 2014. The Company’s Shares were listed with a
Premium Listing on the Official List of the UK Listing Authority
and admitted to trading on the Main Market of the London Stock
Exchange (“LSE”) on 10 March
2014.
Investment
Objective and Investment Policy
The
Company’s investment objective is to generate attractive risk
adjusted returns, principally through income
distributions.
The
Company’s investment policy is to invest in a diversified portfolio
of credit securities.
The
portfolio can be comprised of any category of credit security,
including, without prejudice to the generality of the foregoing,
bank capital, corporate bonds, high yield bonds, leveraged loans,
payment-in-kind notes and asset-backed securities and can include
securities of a less liquid nature. The portfolio is dynamically
managed by TwentyFour Asset Management LLP (“TwentyFour” or the
“Portfolio Manager”) and, in particular, is not subject to any
geographical restrictions.
The
Company maintains a portfolio diversified by issuer and comprises
at least 50 credit securities. No more than 5% of the portfolio
value will be invested in any single credit security or issuer of
credit securities, tested at the time of making or adding to an
investment in the relevant credit security. The Company may hold up
to 10% in cash but works on the basis of an operational limit of 5%
and any uninvested cash, surplus capital or assets may be invested
on a temporary basis in:
-
cash or cash equivalents, money
market instruments, bonds, commercial paper or other debt
obligations with banks or other counterparties having a “single A”
or higher credit rating as determined by any internationally
recognised rating agency which may or may not be registered in the
EU; and
-
any “government and public
securities” as defined for the purposes of the Financial Conduct
Authority (the “FCA”) Rules.
Efficient
portfolio management techniques are employed by the Company, and
may include currency and interest rate hedging and the use of other
derivatives to manage key risks such as interest rate sensitivity
and to mitigate market volatility. The Company’s currency hedging
policy will only be used for efficient portfolio
management.
The
Company does not employ gearing or derivatives for investment
purposes. The Company may use borrowing for short-term liquidity
purposes, which could be achieved through arranging a loan facility
or other types of collateralised borrowing instruments including
repurchase transactions and stock lending. The Articles restrict
the borrowings of the Company to 10% of the Company’s Net Asset
Value (“NAV”) at the time of drawdown. No arrangements for
borrowing are currently in place.
At
launch, the Company had a target net total return on the original
issue price of between 8% and 10% per annum. This comprised a
target dividend payment of 6p per share per annum and a target
capital return of 2p-4p, both based on the original issue amount of
100p. Whilst there is no guarantee that this can or will be
achieved, the 6p per share Dividend Target has consistently been
met. Refer to note 19 to the Financial Statements for details of
the Company’s dividend policy.
In
accordance with the Listing Rules, the Company can only make a
material change to its investment policy with the approval of its
Shareholders by Ordinary Resolution.
Shareholder
Information
Apex
Fundrock Limited (previously called Maitland Institutional Services
Limited) (“AFL” or the “AIFM”) is responsible for calculating the
NAV per share of the Company. Whilst AFL has delegated this
responsibility to Northern Trust International Fund Administration
Services (Guernsey) Limited (the
“Administrator”), they still perform an oversight
function.
The
unaudited NAV per Ordinary Share will be calculated as at the close
of business on every Wednesday that is also a business day, as well
as the last business day of every month and will be announced by a
Regulatory News Service the following business day.
CHAIRMAN’S
STATEMENT
For
the year ended 30 September
2023
As
Chairman to the TwentyFour Select Monthly Income Fund Limited, I am
delighted to present my first report on the Company’s progress for
the year ended 30 September
2023.
Market
Overview
Central bank
activity, higher inflation data, continuing low employment rates
and the upward pressure on wages have been the biggest driver for
much of the year as central banks implemented more rate hikes and
market participants watched closely for signs that inflation was
moving back towards target. Towards the end of the year to
30 September 2023, central banks
seemed to be approaching or were already at terminal rates for the
cycle, allowing existing rate increases to feed through and to
continue to bring inflation closer to target. Labour markets and
other economic data remained resilient, leading to some market
participants to call for a soft-landing. However, in our view, with
central banks maintaining their “higher for longer” messaging,
there is an increased likelihood of more cracks appearing in the
global economic picture.
Towards the end
of the year, volatility in the rates market was driven by strong
economic data and concerns over budget deficits together with
increased supply and term premiums. This volatility led to a modest
softening in credit spreads towards the end of the
period.
Generally,
earnings remained resilient, particularly in the European banking
sector where banks maintained strong capital levels and low
non-performing loans (“NPLs”) and called and issued Additional
Tier-one bonds (“AT1s”) as expected, post the collapse of Credit
Suisse.
With
the bouts of volatility over the period, there is a lot of value in
the portfolio, with many of the Portfolio Manager’s favourite names
and bonds trading at very attractive levels.
The
Portfolio Manager also sought to increase the credit quality of the
portfolio by continuing to conduct relative value switches, which
served to improve the yield and extend duration to lock in the
available attractive yield levels.
Outlook
The
Portfolio Manager’s base case is for a “soft-ish” landing whereby
it expects a short and shallow recession and for the unemployment
rate and default rates to increase moderately. We expect to see a
deterioration of economic fundamentals as the lag effects of the
many interest rate increases feed through economies, leading to a
mild recession as the economy is supported by strong consumers,
corporates and banking sector. This should give central banks the
ability to cut interest rates later in 2024.
The
Board believes there is a lot of value in the portfolio and the
very attractive yields offer good protection against future
volatility and the Portfolio Manager is actively adjusting the
portfolio to find better opportunities for value, in order to
optimise the Company’s performance.
Share
Activity
In
contrast to the wider investment company market, which saw many
companies of the Main Market of the LSE trading at large discounts,
the Company traded close to NAV for the majority of the period, at
an average of 0.03% premium (year ended 30
September 2022: 3.38% premium).
On
3 April 2023, an Extraordinary
General Meeting (“EGM”) was held, in order to request shareholder
approval to issue further shares, up to 20% of issued shares, to
meet investor demand. This was in addition to the 20% already
approved at the 2022 Annual General Meeting. The EGM’s resolutions
were approved.
Due
to the availability of accretive assets for purchase, and because
of shareholder demand, the Company was able to issue 28,050,000 of
new shares during the year.
A
total of 681,567 shares were submitted for tender in the first two
quarterly tender offers during the year (129,108 for the quarter
ended 31 December 2022 and 552,459
for the quarter ended 31 March 2023),
and these shares were subsequently successfully placed or purchased
by the Company’s Financial Adviser and Corporate Broker, Deutsche
Numis Limited (“Numis”).
In
respect of the quarter ended 30 June
2023, 3,939,187 shares were submitted for tender at a price
of 72.62p per share; a discount to the relevant NAV of 74.10p per
share. 500,000 shares were successfully placed or purchased by
Numis, whilst the Company took advantage of the accretive nature of
repurchasing the residual 3,439,187 shares at a discounted price to
NAV, and took them into Treasury.
Similarly, in
respect of the quarter ended 30 September
2023, 1,039,168 shares were submitted for tender at a price
of 73.90p per share, a discount to the relevant NAV of 75.44p per
share, of which 539,168 were successfully placed or purchased by
Numis, whilst the Company repurchased the residual 500,000 shares,
again taking them into Treasury in October
2023.
It is
pleasing to note that the Company’s shareholder base continues to
diversify with an increase in retail investors investing via
platforms.
Return
On
formation, the Company’s objective was to generate a return of
8-10% with a 0.5p dividend payment each month, with the Board’s
intention that the balance of excess income (as defined in note 19
to the Financial Statements) for the financial year would be paid
within the final monthly dividend. Whilst the Company hasn’t
achieved its original target capital return, each financial year it
has exceeded its Dividend Target. For the year ended 30 September 2023, the final dividend declared
for September was 1.87p per share giving a total annual dividend
declared for the financial year of 7.37p per share, which the Board
believes is an excellent result for a period when markets continued
to see volatility and negative performance dominate.
During the
reporting period, the NAV per share saw an increase from 69.99 to
75.44, a rise of 7.79%, and NAV per share total return for the
period was 17.54%.
This,
together with the favourable net increase in share capital noted
above, meant the Company saw a very positive increase in net assets
from approximately £151.3m to £181.7m over the year.
Dividend
Policy
The
Board and the Portfolio Manager are very focused on the
sustainability of the Company’s dividend policy and regularly
monitor and review the position. A Committee of the Board meets
each month to approve the monthly payment of 0.5p per
share.
The
Portfolio Manager is confident that due to the ongoing yields
available in the market generally, the current monthly Dividend
Target of 0.5p per share remains achievable, even though there is
no guarantee that the Company will be able to continue distributing
0.5p per month per share in the years ahead.
Whilst the
approach of declaring excess income for the year at the
October 2023 dividend meeting is
entirely consistent with previous years, the Directors are
cognisant that the amount declared in October 2023 was notably higher than in recent
years. Based on current expectations of yields it is entirely
possible that 2023/24 might also produce a generous excess income
amount, and the Directors and Portfolio Manager have considered
whether the Company may be able to temporarily spread the excess
income more evenly during 2023/24 but have concluded that no
immediate change to the monthly dividend profile of 0.5p per share
is warranted. The Directors will continue to monitor the position
during the year ending 30 September
2024 and, where possible to do so, will provide appropriate
updates on its dividend expectations for the year.
Annual
General Meeting
The
Company’s 2023 Annual General Meeting (“AGM”) was held on
11 August 2023, with all resolutions
being passed.
Other
At
the Company’s AGM, Claire Whittet
retired as Non-executive Director and Chairperson, having served on
the Board since the Company’s formation in 2014. Claire has been
instrumental throughout to its enduring success, and I would like
to thank her for her hard work and dedication throughout her tenure
with the Company.
At
the AGM, I was delighted to be appointed as Chairman whilst
Sharon Parr became Audit Chair and
Chair of the Remuneration and Nomination Committee. Wendy Dorey acts as Chair of the Management
Engagement Committee.
With
a view to building on the ongoing success and governance of the
Company, the Board decided to permanently increase its size to four
directors and engaged an independent recruitment firm, Cornforth
Consulting Limited, to perform the search for a new director. The
cost of four directors is covered by the cap on directors fees of
£250,000 approved at the 2022 AGM.
The
Board was delighted with the appointment of Richard Class as a Director of the Company on
1 November 2023. Richard is based in
London and has had a fixed income
career of over 30 years in the city, including over a decade at
Morgan Stanley where he was Managing Director and Head of EMEA
Business Development for Fixed Income, managing fixed income
portfolios with assets totalling €7 billion.
Now
that the Company has successfully concluded the process of
replacing the scheduled retirements of the legacy Board, and
brought its number to four, the Board will conduct a board
evaluation process in early 2024, the last review having been
performed in 2020. Whilst this evaluation will initially be
performed internally, the Board intends to subsequently appoint a
firm to conduct an independent board evaluation. To maximise value
for the Company, an independent review will be undertaken as soon
as all Board members are considered to have fully settled and
embedded into their respective roles, no earlier than
2025.
The
growth of platform directed investors means that they constitute a
significant part of our share register and the Board continues to
discuss options to better engage with the full range of our
Shareholders.
During the year,
asset managers within the UK and Europe have seen increased pressure from
stakeholders to assess and disclose the impact of climate change on
investment portfolios.
The
Portfolio Manager has a formalised approach to this risk integrated
within a robust environmental, social and governance framework
which is a major factor in the Portfolio Manager’s investment
analysis. The Board continues to evaluate what aspects the Company
will consider reporting, based on the regulatory requirements of
the Company and developing best practice in the Company’s
sector.
TwentyFour
continues to provide excellent thought leadership through various
industry commentary and podcasts and webinar presentations. The
Board continues to liaise closely with the Portfolio Manager and
held a Strategy Day on 22 November
2023 in London with
TwentyFour and the key advisers to the Company.
On
behalf of the Board, I would like to thank all Shareholders for
their continued support.
Ashley Paxton
Chairman
14 December 2023
PORTFOLIO
MANAGER’S REPORT
For
the year ended 30 September
2023
Market
Environment
The
period began with volatility after September
2022 saw another US inflation print higher than expectations
and a subsequent hawkish Federal Open Market Committee meeting saw
volatility in the rates market. Meanwhile, the hangover from the
Truss mini budget continued to contribute to instability in the
gilts market.
Towards the end
of 2022, protests in China about
the strict COVID-19 restrictions that had been in place for
multiple years eventually led to the government relaxing its
‘zero-COVID’ approach, which markets took positively as a step
towards global supply chains being repaired. The Russia-Ukraine conflict continued to impact markets
although growth forecasts in Europe were revised upwards as the trading
bloc’s swift response to the Russian gas cut off meant that they
were likely to avoid any of the adverse scenarios that many said
were likely just a few months earlier.
In
March 2023, a US regional bank crisis
unfolded when Silicon Valley Bank (“SVB”) was seized by the
Californian authorities. Despite being the 16th largest bank in the
US, SVB appeared to have faced unique circumstances of poor risk
management, a low level of insured deposits, very large deposit
outflows and a large concentration in long-dated Treasuries, held
with unrealised losses.
The
SVB story came at the worst time for Credit Suisse leading to large
deposit withdrawals that eventually led the Swiss regulator to
contentiously deem the bank to be non-viable. Additionally, the
Swiss regulator’s hugely controversial subordination of Additional
Tier-one bonds (“AT1s”) below equity holders meant this sector saw
a lot of volatility in March. However, the European and UK
rejection of the Swiss regulator’s approach helped to comfort the
market.
Deposit outflows
from regional banks overall steadied in April 2023. However, First Republic Bank
continued to struggle, resulting in a deal being brokered for JP
Morgan to buy the ailing US regional lender. Volatility remained
elevated through to the end of May
2023, but news of deposit inflows and the resultant
stabilising of regional bank share prices meant the sector
eventually dropped out of the headlines.
Towards the end
of the year to September 2023, the
soft-landing narrative took hold. Inflation data was progressing
encouragingly, with US inflation showing good signs of slowing. In
July 2023, core inflation
month-on-month was +0.16%, the lowest reading in over two years,
and the last three prints of core inflation month-on-month data in
the period, when annualised, were close to the Federal Reserve’s 2%
target.
European
inflation was slightly more volatile, although the data towards the
end of the year was more encouraging, with headline year-on-year
inflation down to 4.3% for the eurozone and core inflation for the
bloc at 4.5%. In the UK, where inflation had been stickier, the
September 2023 print finally gave the
market a reason to be optimistic that prices were coming down.
Year-on-year headline inflation came in at 6.7% (versus 7%
expected), while core inflation was 6.1% (versus 6.8%
expected).
Growth data
releases remained robust, in particular, labour markets. In the US,
there were strong non-farm payroll numbers across the year and
unemployment finished at a very impressive 3.8%. In Europe and the UK, the unemployment rate also
stayed at historically low levels.
Portfolio
Performance
The
Company has returned 17.54% (NAV per share) in the year to
30 September 2023, on a total return
basis.
Global inflation
and resulting increases in base rates contributed to strong
performance for the year, with the best performing sector in the
year being collateralised loan obligations (“CLOs”), which returned
34.81%, benefitting from the very high starting spread and the
floating rate nature of the instrument. High Yield assets also
performed well returning 13.90% and 10.68% in Europe and the US, respectively. AT1s saw some
volatility over the year due to the Credit Suisse issues but posted
a total return of 11.40%.
Portfolio
Strategy
At a
sector level, the team reduced US high yield, which had performed
well and looked good value at a spread level. We increased the CLO
exposure, which offered an extremely attractive yield and strong
structural protection against defaults. Within sectors, the team
conducted relative value switches looking to increase the credit
quality of the portfolio, improve the yield, and extend duration to
lock in the available attractive yield levels.
Portfolio
Events
We
took part in an innovative tender and refinance by Shawbrook Bank
Limited with regards to their AT1, which saw significant benefit to
bondholders.
As at
the year end, the Company held a position in Heimstaden AB, which
is a holding company with the main asset being a significant stake
in Heimstaden Bostad, a pan-European residential Real Estate
Investment Trust (“REIT”). The bonds have underperformed over the
year to 30 September 2023 as the
sentiment towards REITs has soured as financing costs have
increased over the last year. Heimstaden Bostad is addressing its
high leverage with an asset sale programme and is committed to its
investment grade rating. As it rolls out its asset sale programme
and potentially secures equity support, we expect bonds to
recover.
The
portfolio suffered no defaults over the year.
Portfolio
& Market Outlook
Markets, like
central banks, are looking at how the data develops with inflation
and labour market figures at the fore. While currently the market
is buying the soft-landing rhetoric, it seems too early to call
this with some growth measures rolling over, with potentially a
number of hikes to come that may affect the real
economy.
We
will keep the robust credit quality of the portfolio and continue
to conduct relative value switches across the portfolio.
TwentyFour
Asset Management LLP
14 December 2023
TOP
TWENTY HOLDINGS
As at
30 September 2023
|
|
Credit
|
|
Percentage
of
|
|
Nominal/
|
Security
#
|
Fair Value
*
|
Net
Asset
|
|
Shares
|
Sector
|
£
|
Value
|
Nationwide
Building Society 10.25 29/06/2049
|
40,960
|
Financial -
Banks
|
4,700,006
|
2.59
|
Rothesay Life
6.875 31/12/2049
|
4,542,000
|
Financial -
Insurance
|
3,813,133
|
2.10
|
Armada
Euro Clo 15/07/2033
|
4,000,000
|
ABS
|
3,275,844
|
1.80
|
Arbour
Clo II FRN 15/04/2034
|
4,000,000
|
ABS
|
3,050,435
|
1.68
|
Avoca
Clo XIII FRN 15/04/2034
|
3,500,000
|
ABS
|
2,736,230
|
1.51
|
Santander UK PLC
10.375%
|
2,000,000
|
Financial -
Banks
|
2,615,219
|
1.44
|
Aareal
Bank AG 29/11/2049
|
3,600,000
|
Financial -
Banks
|
2,596,819
|
1.43
|
UnipolSai
Assicurazioni, 6.375% perp
|
3,100,000
|
Financial -
Insurance
|
2,362,248
|
1.30
|
Intesa
Sanpaolo 6.375 31/12/2049
|
3,110,000
|
Financial -
Banks
|
2,343,602
|
1.29
|
Banco
de Sabadell, 5% perp
|
3,400,000
|
Financial -
Banks
|
2,245,514
|
1.23
|
Phoenix Group 5.75
31/12/2049
|
2,780,000
|
Financial -
Insurance
|
2,188,013
|
1.20
|
St
Pauls Clo 25/04/2030
|
2,835,000
|
ABS
|
2,130,443
|
1.17
|
Volksbank
Wien-baden A.G 7.75 31/12/2049
|
2,600,000
|
Financial -
Banks
|
2,102,030
|
1.16
|
Direct
Line Insurance, 4.75% perp
|
2,900,000
|
Financial -
Insurance
|
2,097,657
|
1.15
|
Societe Generale,
7.875% perp
|
2,400,000
|
Financial -
Banks
|
1,995,622
|
1.10
|
VSK
Holdings Limited VAR 31/7/2061
|
309,000
|
ABS
|
1,976,050
|
1.09
|
UniCredit SpA,
4.45% perp
|
2,900,000
|
Financial -
Banks
|
1,941,229
|
1.07
|
Providus Clo II
FRN 15/07/2031
|
2,500,000
|
ABS
|
1,934,600
|
1.06
|
Syon
Securities Frn 24/02/2027
|
1,998,767
|
ABS
|
1,901,939
|
1.05
|
Investec 6.75 FRN
31/12/2049
|
2,157,000
|
Financial -
Banks
|
1,892,880
|
1.04
|
|
|
|
|
|
Total
|
|
|
49,899,513
|
27.46
|
*
Fair value is the price that would be received to sell an asset or
paid to transfer a liability in an orderly transaction between
market participants at the measurement date.
# Asset-backed
securities (“ABS”). All other securities are Corporate
Bonds.
The
full portfolio listing of bonds and ABS as at 30 September 2023 can be obtained from the
Administrator on request.
BOARD
MEMBERS
Biographical
details of the Directors as at date of signing are as
follows:
Ashley Paxton - (Chairman – effective 11 August 2023)
Mr
Paxton was appointed as a Director to the Company on 1 November 2021 becoming its Chairman on
11 August 2023.
Ashley spent the
majority of his career with KPMG having retired as partner and its
Channel Islands Head of Advisory in 2019. He has developed a wide
breadth of experience from working within practice, beginning in
audit and then building a dedicated advisory team to provide a full
taxonomy of advisory services across the Channel Islands. Ashley gave specific focus to
developing value creation and preservation strategies for his
clients, typically through mergers and
acquisitions.
Ashley currently
holds a number of non-executive directorships across the financial
services sector including a number of companies listed on the
London Stock Exchange. He also plays an important role in the local
third sector as Chairman of the Youth Commission for Guernsey &
Alderney.
A
resident of Guernsey, Ashley is a
Fellow of the Institute for Chartered Accountants in England & Wales and holds an Economics degree from the
University of Warwick.
Sharon Parr - (non-executive Director)
Ms
Parr has over 35 years in the finance industry and spent a
significant portion of her professional career with Deloitte and
Touche in a number of different countries. After a number of years
in the audit department, on relocating to Guernsey in 1999 she transferred to their
fiduciary and fund management business and, after completing a
management buyout and subsequently selling to Barclays Wealth in
2007, she ultimately retired from her role there as Global Head of
Wealth Structuring in 2011.
Ms
Parr holds a number of Non-Executive Directorships across the
financial services sector including in other listed
funds.
Ms
Parr is a Fellow of the Institute of Chartered Accountants in
England and Wales and a member of the Society of Trust and
Estate Practitioners, and is a resident of Guernsey. Ms Parr was appointed to the Board
on 1 November 2022.
Wendy Dorey – (non-executive Director)
Ms
Dorey is an experienced professional in the financial services
industry, with key competencies in business strategy, financial
regulation, risk management and investment marketing and
distribution. She is currently a Director of Dorey Financial
Modelling Limited, an investment consulting company, a Commissioner
for the Guernsey Financial Services Commission, a Non-Executive
Director for Schroders (CI) Limited and a Non-Executive Director
for Weiss Korea Opportunity Fund Limited.
Ms
Dorey has over 25 years’ industry experience working for asset
managers, pension consultants and retail banks in the UK,
Guernsey and France. She has worked for a number of leading
asset managers: BNY Mellon, M&G Asset Management, Friends Ivory
& Sime and Robert Fleming/Save
& Prosper. She has also consulted to the Defined Contribution
Consulting arm of the Punter Southall
Group, and obtained retail banking experience at Lloyds Bank
and Le Credit Lyonnais.
Ms
Dorey is a Fellow of the Institute of Directors and qualified as a
Chartered Director in 2020. She was, until May 2023, the Chair of the Guernsey Branch of the Institute of Directors,
and is a resident of Guernsey. Ms
Dorey was appointed to the Board on 1
February 2023.
Richard Class – (non-executive Director)
Mr
Class’ career spans more than thirty years in the financial
services sector. Over more than a decade at Morgan Stanley, he was
Managing Director and Head of EMEA Business Development for Fixed
Income, and also a portfolio manager for their fixed income
portfolios with assets totalling €7 billion. Prior to that, he was
a Board Director and trainer at BG Consulting, a financial products
training and development company. He began his career as a fixed
income derivatives trader in interest rates and FX products at
Rabobank and Morgan Grenfell. He is
currently a senior advisor to OptimX, which helps clients to reduce
the costs of using financial markets, and is also a senior
mentor.
Mr
Class has a Mathematics degree from Oxford
University, and is a resident of the United Kingdom. He was appointed to the Board
post the year end, on 1 November
2023.
DISCLOSURE
OF DIRECTORSHIPS IN PUBLIC COMPANIES LISTED ON RECOGNISED STOCK
EXCHANGES
The
following summarises the Directors’ directorships in other public
listed companies:
Company
Name
|
|
|
|
|
Stock
Exchange
|
|
|
|
|
|
|
Ashley
Paxton
|
|
|
|
|
|
Downing
Renewables & Infrastructure Trust plc
|
|
London
|
Ikigai Ventures
Limited
|
|
|
|
|
London
|
JZ
Capital Partners Limited
|
|
|
|
London
|
|
|
|
|
|
|
Sharon
Parr (appointed 1 November 2022)
|
|
|
|
JZ
Capital Partners Limited
|
|
|
|
London
|
|
|
|
|
|
|
Wendy
Dorey (appointed 1 February 2023)
|
|
|
|
Weiss
Korea Opportunity Fund Limited
|
|
|
London
|
|
|
|
|
|
|
Richard
Class (appointed 1 November 2023)
|
|
|
None
|
|
|
|
|
|
STRATEGIC
REPORT
For
the year ended 30 September
2023
The
Directors submit to the Shareholders their Strategic Report for the
year ended 30 September
2023.
Business Model and Strategy
The
Company is a closed-ended investment company, incorporated with
limited liability in Guernsey. The
Company has been granted exemption from income tax within
Guernsey. It is the intention of
the Directors to continue to operate the Company so that each year
this tax-exempt status is maintained.
Investment
objectives and policy
The
Company’s investment objective and policy is set out in the Summary
Information.
Income
The
Board intends to distribute an amount at least equal to the value
of the Company’s excess income (as defined in note 19 to the
Financial Statements) arising each financial year to the holders of
Ordinary Shares. However, there is no guarantee that the Dividend
Target of 6.0p per Ordinary Share for each financial year will be
met or that the Company will make any distributions at
all.
The
dividends declared per share for the year ended 30 September 2023 totalled 7.37p (30 September 2022: 6.39p). Based on current
expectations of yields, it is entirely possible that the year
ending 30 September 2024 might also
produce a generous excess income amount and the Directors and
Portfolio Manager will continue to consider whether the Company may
temporarily spread the excess income more evenly during the
year.
Long-term
growth in capital value
The
asset value of the Company’s portfolio is heavily influenced by
external macro-economic factors. The Directors regularly discuss
the portfolio with the Portfolio Manager. Additional details are
covered in the Chairman’s Statement and Portfolio Manager’s
Report.
Business Environment
The
Company’s risk exposure and the effectiveness of its risk
management and internal control systems are contained within the
Company’s risk matrix, which is reviewed regularly by the Audit and
Risk Committee and at least annually by the Board. The Board is
satisfied that it has carried out a robust assessment of its
principal risks and uncertainties.
Principal
Risks and Uncertainties
Market
risk
The
Company invests in credit securities which are subject to market
risk, including the potential for both losses and gains from price
risk, reinvestment risk, interest rate risk, and foreign currency
risk. These are discussed in detail in note 16 to the Financial
Statements.
The
market and macro environments became more challenging during the
prior period when the possibility of more extreme outcomes
increased. Despite the markets discounting a riskier future the
Board retained (and continues to retain) a consistent market risk
appetite. Consequently, the Company has not seen the significant
drop in value experienced in the prior year (which was largely in
line with the wider fixed income market and saw very negative
returns, reflecting the economic volatility and heightened
geopolitical tensions experienced in 2022). The attractive yields,
which are still on offer have enabled the Portfolio Manager to
maintain higher purchase yields whilst limiting the impact on
credit quality.
The
Company’s continuing position in relation to interest rate and
duration risk is monitored on a weekly basis by the Portfolio
Manager as part of its review of the weekly NAV calculations
prepared by the Company’s Administrator. The Company may also use
swap contracts to mitigate the effects of market volatility on
interest rate risk. There were no swaps held as at 30 September 2023.
Given
the Company’s exposure to investments denominated in currencies
other than sterling, the Company is exposed to foreign currency
risk. The Company manages its exposure to currency movements by
using spot and forward foreign exchange contracts, which are rolled
forward periodically and typically for a period of one
month.
Each
quarter, the Board formally reviews the investment performance
reports, and amortisation schedules (setting out upcoming
maturities for monitoring cashflow available for reinvestment)
provided by the Portfolio Manager. The Board also considers the
impact of economic volatility and of heightened geopolitical
tensions on the Company’s performance.
Credit
risk
The
Company invests in credit securities issued by other companies,
trusts or other investment vehicles which, compared to bonds issued
or guaranteed by governments, are generally exposed to greater risk
of default in the repayment of the capital provided to the issuer
or interest payments due to the Company and also may expose the
Company to more structural risk. These are discussed in detail in
note 16 to the Financial Statements.
Each
quarter, the Board formally considers portfolio credit analysis
presented to it by the Portfolio Manager.
Liquidity
risk
Substantially all
of the assets of the Company are invested in credit securities.
These may be illiquid and this may limit the ability of the Company
to realise its investments for the purposes of cash management,
including any needs arising for dividend payments, buying back
Ordinary Shares under the Quarterly Tender process or in the
market. There may be no active market in the Company’s interests in
credit securities and the Company may be required to provide
liquidity to fund Tender Requests or repay any borrowings. The
Company does not have redemption rights in relation to any of its
investments. As a consequence, the value of the Company’s
investments may be materially adversely affected. This is discussed
in detail in note 16 to the Financial Statements.
The
Company has the authority to arrange a Revolving Credit Facility of
up to 10% of NAV to fund short-term liquidity requirements. This
arrangement has been provided in the past by the Company’s
Principal Banker and could be re-instated in the future subject to
the prior agreement of the Principal Banker.
Each
quarter, the Board formally reviews documentation provided by the
Portfolio Manager pertaining to liquidity risk and assesses any
action which may be required.
Valuation of
investments
The
Company’s investments had a fair value of £176,435,682 as at
30 September 2023 (30 September 2022: £148,915,038) which are the
key constituent of the Company’s net assets. There has been no
change to the accounting policy applied to how these investments
have been valued (see notes 2 and 3 to the Financial Statements)
but the use of an independent third party valuation expert was used
to value approximately 3.2% of the Company’s investments at
30 September 2023 (30 September 2022: 2.7%).
Income
recognition risk
As
disclosed in note 3(ii)(d) to the Financial Statements, interest
income is recognised on a time-proportionate basis using the
effective interest rate method. Discounts received or premiums paid
in connection with the acquisition of credit securities are
amortised into interest income using the effective interest rate
method over the expected life of the related security.
When
calculating the effective interest rate, the Portfolio Manager
estimates cash flows considering the expected life of the financial
instrument, including future credit losses and deferred interest
payments. The calculation includes all fees paid or received
between parties to the contract that are an integral part of the
effective interest rate and all other premiums or
discounts.
Revenue
estimations are sensitive to changes in interest income resulting
from financial instruments defaulting. Interest income represents
the Portfolio Manager’s best estimate having regard to historical
volatility and looking forward at the global
environment.
The
Board’s assessment of income recognition risk has not materially
changed during the year.
Dividends
The
Company has a Dividend Target of 6p per Ordinary Share for each
financial year, and the Board consequently targets a minimum
monthly dividend of 0.5p per share. If the Dividend Target was not
able to be met in a year or the Board considers that it should be
reduced, a Continuation Resolution would be put to
Shareholders.
As
explained in note 19 to the Financial Statements, in addition to
the Dividend Target the Board intends, with the final monthly
dividend for each financial year, to distribute an amount equal to
the value of any unaudited excess income of the Company for that
financial year remaining after payment of the monthly
dividends.
A
Committee of the Board meets each month to consider and, if
appropriate, approve an interim dividend of 0.5p per share, and in
respect of the final monthly dividend for each financial year any
additional amount noted above.
As
the Dividend Target is central to the Company’s purpose, the Board
and the Portfolio Manager are very focused on the sustainability of
the dividend and regularly monitor and review the position. The
Portfolio Manager is confident that due to the continuing
improvement in yields in the market as a result of the higher
interest rate environments, the Dividend Target remains
achievable.
The
Company’s ability to pay dividends is governed by Guernsey company law which requires the
Company to satisfy the prescribed statutory solvency test, which
the Directors formally consider at each monthly meeting prior to
approving each dividend payment. If at the time a dividend is to be
made the Directors believe that the solvency test cannot be passed,
then no payment will be made.
Quarterly
tenders
The
Company has incorporated into its structure a mechanism for a
quarterly tender minimising the risk of Ordinary Shares trading at
a significant discount to NAV. The Company
offers a tender on a quarterly basis for up to 20% of the Ordinary
Shares in issue as at the relevant Quarter Record Date, subject to
an aggregate limit of 50% of the Ordinary Shares in issue in any
twelve-month period ending on the relevant Quarter Record Date. In
the event that quarterly tender applications, on any tender
submission deadline, exceed the 50% limit, the Directors will
convene a General Meeting in accordance with the Continuation Vote
requirements set out in note 16 to the Financial Statements. The
execution and acceptance of the quarterly tenders is at the sole
discretion of the Board.
A key
consideration for the ongoing viability of the Company is therefore
its liquidity assessment which is considered on an ongoing basis by
the Board. No liquidity concerns were identified for the year ended
30 September 2023 and the Board and
Portfolio Manager are confident that under anticipated
market conditions the Company can
continue to meet tender requests as they arise.
During the year,
4,705,805 shares were tendered. 1,266,618 shares were initially
purchased by the Corporate Broker and subsequently placed with
investors, while 3,439,187 shares were repurchased by the Company
and are held in Treasury as at 30 September
2023. A further 500,000 shares were taken into Treasury in
October 2023 in respect of the
30 September 2023 tender.
Shareholder
base
The
Corporate Broker has limited ability to engage with all investor
types and non-institutional investors now form a large shareholder
group. These
are often more active on a daily basis than passive institutional
holders, and with turnover in the shares relatively low, have an
important marginal price impact. This could cause the price to be
especially volatile during periods when market maker capital is
constrained, and information flow is poor. As engagement with this
group of shareholders is difficult, the Company shares could suffer
from periods of short-term market volatility.
The
Board utilises the Corporate Broker and media to monitor
Shareholders’ opinions and identify potential issues. The Board is
reviewing avenues to better engage with all shareholder groups and
in doing so has to weigh up the cost of this against the long-term
benefits. To help limit this risk, subject to market conditions and
cost benefit factors, the Board will actively utilise its buyback
Treasury capacity and ability to sell shares through taps directly
into the market.
Other
Risks and Uncertainties
The
Board has identified the following other risks and uncertainties
along with steps taken to monitor (and mitigate where
appropriate/possible):
Operational
risks
The
Company does not have executive directors or employees. It has
entered into contractual arrangements with a network of third
parties (the “Service Providers”) who provide services to it. The
Board, through the Management Engagement Committee (the "MEC"),
undertakes annual due diligence on, and ongoing monitoring of, all
such Service Providers including obtaining a confirmation that each
such Service Provider complies with relevant laws regulations and
good practice and has environmental, social and governance policies
in place.
The
Company is exposed to the risk arising from any failures of systems
and controls in the operations of the Service Providers. The Board
and its Audit and Risk Committee regularly review reports from the
Portfolio Manager, the AIFM, Administrator and Custodian and
Depositary on their internal controls. The Administrator will
report to the Portfolio Manager any valuation issues which will be
brought to the Board for final approval as required.
The
Company is exposed to cyber-attack risk through its Service
Providers. Through the MEC, the Company asks its Service Providers
to confirm that they have appropriate safeguards in place to
mitigate the risk of cyber-attacks and remote working (including
minimising the adverse consequences arising from any such attack),
that they provide regular updates to the Board on cyber security,
and conduct ongoing monitoring of industry developments in this
area. Due to COVID-19, Service Providers adopted a work from home
arrangement. Since that time, some Service Providers have continued
to work from home from time to time. None of the Service Providers
have reported any problems regarding cyber security when questioned
by the MEC.
The
Board’s assessment of operational risks has not materially changed
during the year and is satisfied that the Service Providers have
the relevant controls in place to manage operational
risks.
Accounting,
legal and regulatory risks
The
Company is exposed to the risk that it may fail to maintain
accurate accounting records, fail to comply with requirements of
its Admission document and fail to meet listing obligations. The
accounting records prepared by the Administrator are reviewed by
the Portfolio Manager. The Portfolio Manager, Administrator, AIFM,
Custodian and Depositary and the Financial Adviser and Corporate
Broker provide regular updates to the Board on compliance with the
Admission document and changes in regulation. Changes in legal or
regulatory environments can have a major impact on some classes of
debt. The Portfolio Manager and Board monitor this and take
appropriate action where needed.
The
Board’s assessment of accounting, legal and regulatory risk has not
changed during the year.
Climate
risk
The
Financial Stability Board (“FSB”) formed the Task Force on
Climate-related Financial Disclosures (“TCFD”) in December 2015 to address the impact climate
change is having on companies and the global financial system
through disclosure. On 2 July 2019,
the UK Government announced, in its Green Finance Strategy, the
expectation that listed companies and large asset owners should
disclose in line with the TCFD. The Company is a closed-ended
Guernsey domiciled fund. There is
no current mandatory requirement under the listing rules or any
other framework to make disclosures in line with the TCFD for
closed-ended funds. The Board continues to assess, with the
Portfolio Manager, disclosures prevailing in the market in similar
entities to that of the Company so as to best articulate the low
levels of climate risk to which the Board believes the Company is
exposed.
The
Portfolio Manager considers environmental, social and governance
(“ESG”) factors in the investment process, utilising an integrated
approach. Additional information is detailed below.
Environmental,
social and governance
The
Board recognises the importance of ESG factors in the investment
management industry and the wider economy as whole. The Company is
a closed-ended investment company with a limited purpose and
without employees. As such, it is the view of the Board that the
direct environmental and social impact of the Company is limited
and that ESG considerations are most applicable in respect of the
asset allocation and security selection decisions made for its
portfolio.
The
Company has appointed the Portfolio Manager to advise it in
relation to all aspects relevant to the Investment
Portfolio. The Company was not established
with explicit ESG targets and does not have any ESG
objectives. The Portfolio
Manager includes ESG factors in its investment appraisal and
approach and has a formal ESG framework. The Portfolio Manager has
an ESG Committee representing all areas of its business, which is
governed by its Executive Committee. The Board receives regular
updates from the Portfolio Manager on its ESG processes and
assesses their suitability for the Company. ESG factors are
assessed by the Portfolio Manager for every transaction as part of
their investment process. Climate risks are incorporated in the ESG
analysis under environmental factors.
Future
Prospects
The
Board’s main focus is to generate attractive risk adjusted returns
principally through income distributions. The future of the Company
is dependent upon the success of the investment strategy. The
investment outlook and future developments are discussed in both
the Chairman’s Statement and the Portfolio Manager’s
Report.
Board
Diversity
When
appointing new Directors and reviewing the Board composition, the
Remuneration and Nomination Committee considers, amongst other
factors, cognitive diversity, balance of skills, knowledge, gender,
social and ethnic background and experience. Upon appointment of Mr
Richard Class to the Board on
1 November 2023, the Board consisted
of two female and two male Directors. Ms Parr is the Chair of the
Audit and Risk Committee. As at 30 September
2023, the Company has therefore met the targets set by the
Listing Rules LR 9.8.6R(9) and LR 14.3.33R(1) in relation to board
diversity for the percentage of its board members who are female
and also in a senior position.
The
Remuneration and Nomination Committee considers the Listing Rules
Requirement in making its recommendations for appointments but does
not consider it appropriate to establish targets or quotas in this
regard. It has not met the target to have one director from a
minority ethnic background but considers this satisfactory due to
the cognitive diversity of the members of the Board and in
particular due to the difference in backgrounds of its constituent
members. The Company has no employees.
Shareholder
Engagement
The
Board welcomes Shareholders’ views and places great importance on
communication with its Shareholders. Shareholders wishing to meet
with the Chairman and other Board members should contact the
Company’s Administrator.
The
Portfolio Manager and Deutsche Numis Limited as Financial Adviser
and Corporate Broker maintain a regular dialogue with institutional
Shareholders, the feedback from which is reported to the
Board.
The
Company’s AGM provides a forum for Shareholders to meet and discuss
issues of the Company and they have the opportunity to vote on the
resolutions as specified in the Notice of the AGM. The Notice of
the AGM and the results are released to the LSE in the form of an
announcement.
In
addition, members of the Board attend investor days and conferences
held by the Portfolio Manager.
The
Company maintains a website which contains comprehensive
information, including links to regulatory announcements, share
price information, financial reports, investment objectives,
monthly factsheets and investor contacts.
Position and Performance
Packaged
Retail and Insurance-based Investment Products Key Information
Document
The
Company has published a Key Information Document (“KID”) in
compliance with the Packaged Retail and Insurance-based Investment
Products (“PRIIPs”) Regulation. The KID can be found on the Company
website at the below web address:
https://twentyfouram.com/funds/twentyfour-select-monthly-income-fund/fund-literature/
The
process for calculating the risks, cost and potential returns are
prescribed by regulation. The figures in the KID may not reflect
the Portfolio Manager’s expected returns for the Company and
anticipated returns cannot be guaranteed.
Key
Performance Indicators (“KPIs”)
At
each Board meeting, the Directors consider a number of performance
measures to assess the Company’s success in achieving its
objectives. Balanced with the Board’s consideration of risk
factors, below are the main KPIs which have been identified by the
Board for determining the progress of the Company:
-
Monthly
Dividends;
-
Net Asset
Value;
-
Share Price;
-
Premium/Discount;
and
-
Ongoing
Charges.
Net asset
value
The
Net Asset Value (“NAV”) per Ordinary Share, including revenue
reserve, at 30 September 2023 was
75.44p, based on net assets as at this date of £181,689,040 divided
by number of Ordinary Redeemable Shares in issue of 240,824,331
(30 September 2022: 69.99p based on
net assets of 151,334,878 divided by number of Ordinary Redeemable
Shares in issue of 216,213,518).
Share
price
The
Share Price is the price per share per Ordinary Redeemable Share
trading on the London Stock Exchange. On 30
September 2023, the share price was 75.60p (30 September 2022: 73.00p).
Premium/discount
to NAV
The
premium/discount to NAV is a percentage difference in share price
per share to the net asset value per share. It is calculated by
subtracting the share price from the NAV per share and dividing it
by the NAV per share. If the share price is lower than the NAV per
share, the shares are trading at a discount. If the share price is
higher than the NAV per Share, the shares are trading at a premium.
On 30 September 2023, the premium to
NAV was 0.21% (30 September 2022:
premium of 4.30%).
Ongoing
charges
Ongoing charges
for the year ended 30 September 2023
have been calculated in accordance with the Association of
Investment Companies (the “AIC”) recommended methodology. The
ongoing charges represent the Company’s management fee and all
other operating expenses, excluding finance costs, share issue or
buyback costs and non-recurring legal and professional fees,
expressed as a percentage of the average of the weekly net assets
during the year.
The
ongoing charges for the year ended 30
September 2023 were 1.26% (30
September 2022: 1.20%). The ongoing charges were calculated
as follows:
|
|
|
|
30.09.23
|
|
30.09.22
|
|
|
|
|
£
|
|
£
|
Ongoing
charges
|
|
|
|
|
|
Average NAV for
the year (a)
|
|
|
174,168,870
|
|
172,466,786
|
Total
expenses
|
|
|
2,187,168
|
|
2,074,360
|
|
|
|
|
|
|
|
Total
recognised expenses (b)
|
|
|
2,187,168
|
|
2,074,360
|
|
|
|
|
|
|
|
Ongoing charges
(b/a)
|
|
|
1.26%
|
|
1.20%
|
Dividends
The
Company maintains a Dividend Target of 6p per share.
The dividend per share for the
year ended 30 September 2023 was
7.37p (30 September 2022:
6.39p) meaning that the
Company met and exceeded its Dividend Target for the current year.
During the year, the following dividends were declared:
Period
to
|
Dividend
per Share (pence)
|
Dividend
declared (£)
|
Ex-dividend
date
|
Record
date
|
Pay
date
|
31
October 2022
|
0.50
|
1,105,068
|
17
November 2022
|
18
November 2022
|
2
December 2022
|
30
November 2022
|
0.50
|
1,129,068
|
15
December 2022
|
16
December 2022
|
30
December 2022
|
30
December 2022
|
0.50
|
1,149,068
|
19
January 2023
|
20
January 2023
|
3
February 2023
|
31
January 2023
|
0.50
|
1,195,318
|
16
February 2023
|
17
February 2023
|
3
March 2023
|
28
February 2023
|
0.50
|
1,218,818
|
16
March 2023
|
17
March 2023
|
31
March 2023
|
31
March 2023
|
0.50
|
1,221,318
|
20
April 2023
|
21
April 2023
|
5 May
2023
|
28
April 2023
|
0.50
|
1,221,318
|
18
May 2023
|
19
May 2023
|
2
June 2023
|
31
May 2023
|
0.50
|
1,221,318
|
15
June 2023
|
16
June 2023
|
30
June 2023
|
30
June 2023
|
0.50
|
1,204,122
|
20
July 2023
|
21
July 2023
|
4
August 2023
|
31
July 2023
|
0.50
|
1,204,122
|
17
August 2023
|
18
August 2023
|
1
September 2023
|
31
August 2023
|
0.50
|
1,204,122
|
21
September 2023
|
22
September 2023
|
6
October 2023
|
29
September 2023
|
1.87
|
4,493,959
|
19
October 2023
|
20
October 2023
|
3
November 2023
|
The
Directors will continue to monitor the appropriateness of the
dividend policy.
Viability
Statement
Under
the UK Corporate Governance Code, the Board is required to make a
viability statement which considers the Company’s current position
and principal risks and uncertainties, combined with an assessment
of the prospects of the Company, in order to be able to state that
they have a reasonable expectation that the Company will be able to
continue in operation over the period of their assessment. The
Board considers that three years is an appropriate period to assess
the viability of the Company given the uncertainty of the
environment within which it operates and the principal risks and
uncertainties affecting the Company.
The
Company’s prospects are driven by its business model and strategy.
The Company’s investment objective is to generate attractive risk
adjusted returns, principally through income distributions, by
investing in a diversified portfolio of credit
securities.
Key
assumptions considered by the Board in relation to the viability of
the Company are as follows:
Dividend
Target
The
Company has a Dividend Target of 6p per Ordinary share for each
financial year. If the Dividend Target was not able to be met in a
year or the Board considers that it should be reduced, a
Continuation Resolution would be put to
Shareholders.
The
Company declared dividends for the financial year of 7.37p per
share, and each financial year since incorporation the Company has
paid dividends in excess of the Company’s Target Dividend of 6p per
share.
The
Portfolio Manager is confident that due to the favourable yields in
the market as a result of the higher interest rate environments,
the Dividend Target remains achievable.
Quarterly
Tenders
Due
to the quarterly tender process as described in the Strategic
Report, a key consideration for the ongoing viability of the
Company is therefore its liquidity assessment which is considered
on an ongoing basis by the Board. No liquidity concerns were
identified for the year ended 30 September
2023 and the Board and Portfolio Manager are confident
that under anticipated
market conditions the Company can
continue to meet tender requests as they arise.
During the year,
4,705,805 shares were tendered. 1,266,618 shares were initially
purchased by the Corporate Broker and subsequently placed with
investors, while 3,439,187 shares
were repurchased and are held in Treasury as at 30 September 2023. A further 500,000 shares were
taken into Treasury in October 2023
in respect of the September 2023
tender. Additional information on the tenders is detailed in the
Chairman’s Statement.
As
part of the Board’s viability assessment for the 3 year period to
30 September 2026, having due regard
to the Company’s Principal Risks and Uncertainties summarised in
the Strategic Report, it has formally considered projected cashflow
forecasts, the amortisation profile of its current portfolio, and a
detailed dividend coverage analysis incorporating its assumptions
around reinvestment of bond redemptions at yields sufficient to
ensure the sustainability of income to meet the Company’s future
Dividend Target after known liabilities such as fees and dividends.
Additionally, the Board considered relevant analyses related to
liquidity risk, credit risk, and foreign exchange risk pertaining
to the Company.
Viability
Conclusion
Based
on the above assessment, the Board has concluded that there is a
reasonable expectation that the Company will be able to continue to
operate and to meet its liabilities as they fall due over the over
the three-year period to 30 September
2026 being the viability period.
Section
172 Statement
Although the
Company is domiciled in Guernsey,
the Board has considered the guidance set out in The AIC Code of
Corporate Governance (the “AIC Code”) in relation to Section 172 of
the Companies Act 2006 in the UK. Section 172 of the Companies Act
requires that the Directors of the Company act in the way they
consider, in good faith, is most likely to promote the success of
the Company for the benefit of all stakeholders, including
suppliers, customers and Shareholders.
Further
information as to how the Board has had regard to the Section 172
factors is shown below:
Section
172 factors
|
Key
examples
|
Location
|
Consequences of
decisions in
|
Investment
Objectives and Policy
|
Summary
Information
|
the
long term
|
Future
Prospects
|
Strategic
Report
|
|
Dividend
policy
|
Note
19
|
|
Viability
Statement
|
Strategic
Report
|
|
|
|
Fostering
business
relationships
with suppliers,
customers and
other stakeholders
|
Shareholders; Key
Service Providers
|
Strategic Report;
AGM; Monthly Factsheet and Commentary
|
|
|
|
Impact of
operations on the community and the environment
|
Environmental,
Social and Governance
|
Strategic
Report
|
|
|
|
Maintaining high
standard of business conduct
|
Corporate
Governance
|
Directors'
Report
|
|
|
|
Key
Service Providers
The
Company does not have any employees and as such the Board delegates
responsibility for its day-to-day operations to a number of key
Service Providers. The key Service Providers include the Portfolio
Manager, the Administrator, the Alternative Investment Fund
Manager, the Registrar, the Receiving Agent, the Corporate Broker,
the Legal Advisers and the Auditor. The activities delegated,
service levels and other related reports to the activities of each
Service Provider (such as their own approach to such matters as
cyber risk and assessment of climate change risk to operations) are
closely monitored, where and as appropriate by the Board and they
are required to report to the Board at set intervals.
The
Board also meets at least annually to consider the long-term
strategy of the business, incorporating presentations and
discussion on longer-term opportunities and threats to the
business. Focus is placed on emerging risks which have the
potential to disrupt the business model.
Signed on behalf
of the Board of Directors on 14 December
2023 by:
Ashley Paxton Sharon
Parr
Chairman Director
DIRECTORS’
REPORT
The
Directors present their Annual Report and Audited Financial
Statements for the year ended 30 September
2023.
Business
Review
The
Company
TwentyFour Select
Monthly Income Fund Limited (the “Company”) was incorporated with
limited liability in Guernsey, as
a closed-ended investment company on 12
February 2014. The Company’s Shares were listed with a
Premium Listing on the Official List of the UK Listing Authority
and admitted to trading on the Main Market of the LSE on
10 March 2014.
Investment
Objective and Policy
The
investment objective and policy is set out in the Summary
Information.
Premium/Discount
to Net Asset Value
The
Board monitors and takes actions where appropriate to manage the
level of the share price premium/discount to NAV. In doing this,
the Company can operate a share buyback facility whereby it may
purchase, subject to various terms as set out in its Articles and
in accordance with The Companies (Guernsey) Law, 2008, up to 14.99% of the
Company’s Ordinary Shares in issue immediately following Admission
for trading in the LSE.
The
Company can also offer investors, at the Board’s sole discretion, a
Quarterly Tender, contingent on certain factors, to provide
Shareholders with a quarterly opportunity to submit Ordinary Shares
for placing or repurchase by the Company at a price representing a
discount of no more than 2% to the then prevailing NAV. For
additional information, refer to note 16 (i) to the Financial
Statements.
Shareholder
Information
Shareholder
information is set out in the Summary Information.
The Company had the ability to
issue up to 24,426,351 Ordinary Shares under
a tap facility as approved at the Annual General Meeting on
11 August 2023. On 6
December 2022, a written resolution was passed to issue a
new Block Listing facility for 27,020,000 ordinary shares. At the
extraordinary general meeting held 3 April
2023, Shareholders approved authority for the Board to issue
and allot a further 24,376,351 ordinary shares. During the
financial year ended 30 September
2023, the Company issued 28,050,000
shares.
Going Concern
Statement
A fundamental principle of the
preparation of financial statements in accordance with IFRS is the
judgement that an entity will continue in existence as a going
concern for a period of at least 12 months from the signing of the
financial statements.
After the Company experienced, in
line with the wider fixed income market, a significant drop in NAV
over the previous financial year, the Company has started to
reverse this during the current financial year and has continued
throughout to meet its Dividend Target. The attractive yields which
are still on offer have enabled the Portfolio Manager to maintain
higher purchase yields whilst creating no additional credit
risk.
The
Board in its consideration of the going concern position of the
Company, has formally considered projected cashflow forecasts, and
relevant analyses related to liquidity risk, credit risk, and
foreign exchange risk pertaining to the Company. Against the
Company’s investment objective (see Summary Information), the
Company’s Principal Risks and Uncertainties (see the Strategic
Report) and financial risk management (note 16 to the Financial
Statements), and the viability assessment (see the Strategic
Report), the Board is satisfied that the Company has adequate
financial resources and suitable management arrangements in place
to continue as a going concern for at least twelve months from the
date of approval of the Financial Statements.
Accordingly, the
directors continue to adopt the going concern basis in preparing
these Financial Statements.
Results
The
principal purpose of the Company is to generate an income which is
currently framed on a 6p per share annual Dividend Target. The
ability to generate this is a central focus of the Portfolio
Manager and the Board. The
Board intends to distribute an amount at least equal to the value
of the Company’s excess income, as defined in note 19 to the
Financial Statements, arising each financial year to the holders of
Ordinary Shares on an annual basis.
Importantly, the
ability to achieve the Dividend Target is linked to market
conditions and the amount of risk the Company takes. In this
regard, the intention is not to increase the Company’s risk profile
simply to meet the Dividend Target. However, where the anticipated
rewards for higher risk taking are attractive, the Company would be
comfortable assuming more tactical risk within appropriate
parameters.
The
results for the year are set out in the Statement of Comprehensive
Income. The Directors declared dividends of £15,001,968 during the
year ended 30 September 2023
(30 September 2022: £13,190,681), a
breakdown of which can be found in note 19 to the Financial
Statements. The 30 September 2023
distribution which was declared on 12
October 2023 was paid on 3 November
2023.
Retained earnings
improved during the reporting period. Retained earnings include
realised and unrealised gains and losses on the Company’s assets.
These include both investment assets, such as bonds, and foreign
exchange and other derivatives used purely for hedging, as well as
all forms of income. Securities purchased at a premium and large
foreign exchange movements will further impact retained earnings as
will unfavourable market movements or credit events such as those
prevalent in the financial year.
Managing the
portfolio to improve the retained earnings during favourable market
conditions or to maintain these during difficult market conditions
is also an aim of the Portfolio Manager. The ability to do this is
fundamentally impacted by the nominal (6p per share) Dividend
Target.
Portfolio
Manager
The
portfolio management fee is payable to the Portfolio Manager,
TwentyFour Asset Management LLP, monthly in arrears at a rate of
0.75% per annum of the lower of NAV, which is calculated weekly on
each valuation day and on the last business day of each month, or
market capitalisation of each class of share. For additional
information refer to note 14 to the Financial Statements. The
Portfolio Manager is also entitled to a commission of 0.175% of the
aggregate gross offering proceeds in relation to any issue of new
Shares.
The
Board considers that the interests of Shareholders, as a whole, are
best served by the ongoing appointment of the Portfolio Manager to
achieve the Company’s investment objectives.
Alternative
Investment Fund Manager (“AIFM”)
Alternative
investment fund management services are provided by Apex Fundrock
Limited (previously called Maitland Institutional Services Limited)
(“AFL”). The AIFM fee is payable quarterly in arrears at a rate of
0.07% of the NAV of the Company below £50 million, 0.05% on Net
Assets between £50 million and £100 million and 0.03% on Net Assets
in excess of £100 million. For additional information, refer to
note 15 to the Financial Statements.
Custodian
and Depositary
Custody and
Depositary services are provided by Northern Trust (Guernsey) Limited. The terms of the Depositary
agreement allow Northern Trust (Guernsey) Limited to receive professional fees
for services rendered. The Depositary agreement includes custodian
duties. For additional information, refer to note 15 to the
Financial Statements.
Directors
The
Directors of the Company during the year and as at the date of this
report are set out in the Corporate Information.
Directors’
and Other Interests
The
Directors of the Company held the following Ordinary Shares
beneficially:
|
|
|
|
|
|
30.09.23
|
30.09.22
|
|
|
|
|
|
|
Shares
|
Shares
|
Ashley
Paxton
|
|
|
|
|
100,000
|
22,500
|
Sharon Parr
(appointed 1 November 2022)
|
|
|
98,004
|
-
|
Wendy
Dorey (appointed 1 February 2023)
|
|
|
15,000
|
-
|
Claire Whittet
(resigned 11 August 2023)
|
|
|
25,000
|
25,000
|
Ian
Martin (resigned 1 February 2023)
|
|
|
35,000
|
35,000
|
The
Board do not hold any shareholdings in entities where the Company
has a stake in the same entity that amounts to more than 1% of its
portfolio.
Corporate
Governance
The
Board is committed to high standards of corporate governance and
has implemented a framework for corporate governance which it
considers to be appropriate for an investment company in order to
comply with the principles of the UK Corporate Governance Code (the
“UK Code”). The Company is also required to comply with the Code of
Corporate Governance (the “GFSC Code”) issued by the Guernsey
Financial Services Commission.
The
UK Listing Authority requires all UK premium listing companies to
disclose how they have complied with the provisions of the UK Code.
This Corporate Governance Statement, together with the Going
Concern Statement, Viability Statement and the Statement of
Directors’ Responsibilities, indicates how the Company has complied
with the principles of good governance of the UK Code and its
requirements on Internal Control.
The
Company is a member of the AIC and by complying with the AIC Code
of Corporate Governance (the “AIC Code”) is deemed to comply with
both the UK Code and the GFSC Code.
The
Board has considered the principles and recommendations of the AIC
Code and considers that reporting against these will provide better
information to Shareholders. To ensure ongoing compliance with
these principles the Board reviews a report from the Corporate
Secretary regularly, identifying how the Company is in compliance
and identifying any changes that might be necessary.
The
AIC Code is available on the AIC’s website, www.theaic.co.uk.
The UK Code is available in the Financial Reporting Council’s
website, www.frc.org.uk.
Throughout the
year ended 30 September 2023, the
Company has complied with the recommendations of the AIC Code and
thus the relevant provisions of the UK Code, except as set out
below.
The
UK Code includes provisions relating to:
-
The role of the Chief
Executive;
-
Executive Directors’
remuneration;
-
Annually assessing the need for
an internal audit function; and
-
Senior Independent
Director.
For
the reasons set out in the AIC Code, the Board considers that the
first three provisions are not relevant to the position of the
Company as it is an externally managed investment company. The
Company has therefore not reported further in respect of these
provisions.
The
reason for not appointing a Senior Independent Director is set out
below.
There
have been no other instances of non-compliance, other than those
noted above.
Role,
Composition and Independence of the Board
The
Board is the Company’s governing body and has overall
responsibility for maximising the Company’s success by directing
and supervising the affairs of the business and meeting the
appropriate interests of Shareholders and relevant stakeholders. A
summary of the Board’s responsibilities is as follows:
-
statutory obligations and public
disclosure;
-
strategic matters and financial
reporting;
-
risk assessment and management
including reporting compliance, governance, monitoring and control;
and
-
other matters having a material
effect on the Company.
The
Board’s responsibilities for the Annual Report and Audited
Financial Statements are set out in the Statement of Directors’
Responsibilities.
The
Board historically consisted of three non-executive Directors, but
with the appointment of Mr Richard
Class on 1 November 2023 has
increased to four, all of whom are considered to be independent of
the Portfolio Manager and as prescribed by the Listing
Rules.
The
Board does not consider it appropriate to appoint a Senior
Independent Director because all Directors are deemed to be
independent by the Company. Having undertaken a skills review, the
Board considers it has the appropriate balance of diverse skills
and experience, independence and knowledge of the Company and the
wider sector. This enables it to discharge its duties and
responsibilities effectively and that no individual or group of
individuals dominates decision-making. The Chairman is responsible
for leadership of the Board and ensuring its
effectiveness.
The
Chairman is Ashley Paxton (effective
11 August 2023). The Chair of the
Board must be, and is considered to be, independent for the
purposes of Chapter 15 of the Listing Rules.
Biographies for
all the Directors and their list of directorships in other public
listed companies (including cross directorships in those companies)
can be found in the Board Members section. Furthermore, no member
of the Board:
-
has any current or historical
employment with the Portfolio Manager; and
-
has any current directorships in
any other investment funds managed by the Portfolio
Manager.
The
Board needs to ensure that the Annual Report and Audited Financial
Statements, taken as a whole, is fair, balanced and understandable
and provides the information necessary for Shareholders to assess
the Company’s position, performance, business model and strategy.
In seeking to achieve this, the Directors have set out the
Company’s investment objective and policy and have explained how
the Board and its delegated Committees operate and how the
Directors review the risk environment within which the Company
operates and set appropriate risk controls. Furthermore, throughout
the Annual Report and Audited Financial Statements, the Board has
sought to provide further information to enable Shareholders to
have a fair, balanced and understandable view.
The
Board has contractually delegated activities related to the
management of its investment portfolio to the Portfolio Manager,
the arrangement of custodial and depositary services and the
provision of administration, accounting and company secretarial
services including the
independent calculation of the Company’s NAV and the production of
the Annual Report and Financial Statements which are independently
audited to the administrator and registrar functions to the
registrar.
The
Board is responsible for the appointment and monitoring of all
Service Providers to the Company.
The
Directors are kept fully informed of investment and financial
controls and other matters by all Services Providers that are
relevant to the business of the Company and should be brought to
the attention of the Directors.
The
Company has adopted a policy that the composition of the Board of
Directors, which is required by the Company’s Articles to comprise
of at least two persons, is at all times such that a majority of
the Directors are independent of the Portfolio Manager and any
company in the same group as the Portfolio Manager; the Chair of
the Board of Directors is free from any conflicts of interest and
is independent of the Portfolio Manager and of any company in the
same group as the Portfolio Manager; and that no more than one
director, partner, employee or professional adviser to the
Portfolio Manager or any company in the same group as the Portfolio
Manager may be a Director of the Company at any one
time.
The
Board has a breadth of experience relevant to the Company and the
Directors believe that any changes to the Board’s composition can
be managed without undue disruption. With any new director
appointment to the Board, consideration will be given as to what
induction process is appropriate.
The
Board has also given careful consideration to the recommendations
of the Davies Review and after review, believes that the current
appointments provide an appropriate range of skills, experience and
diversity.
Succession
planning is key to the continuance of good corporate governance.
During the year, two Directors rotated off the Board having served
approximately 9 years each. Using an independent recruitment firm,
Sharon Parr was appointed to the
Board on 1 November 2022 and
Wendy Dorey on 1 February 2023. Richard
Class was also identified using an independent recruitment
firm and was appointed to the Board on 1
November 2023.
Directors’
Attendance at Meetings
The
Board holds quarterly Board meetings to discuss general management
including: dividend policy, structure, finance, corporate
governance, marketing, risk management, liquidity, compliance,
asset allocation and gearing, contracts and performance. The
quarterly Board meetings are the principal source of regular
information for the Board enabling it to determine policy and to
monitor performance, compliance and controls. These meetings are
also supplemented by communication and discussions throughout the
year, particularly the regular Board meetings to consider monthly
dividends and quarterly tenders.
A
representative from each of the Portfolio Manager, AIFM,
Administrator, Custodian and Depositary and the Financial Adviser
and Corporate Broker attends each Board meeting either in person or
electronically thus enabling the Board to fully discuss and review
the Company’s operation and performance. Each Director has direct
access to the Portfolio Manager and Company Secretary and may, at
the expense of the Company, seek independent professional advice on
any matter. Both appointment and removal of these parties is to be
agreed by the Board as a whole.
The
Audit and Risk Committee meets at least twice a year, the
Management Engagement Committee and Remuneration and Nomination
Committee meet at least once a year, a dividend meeting is held
monthly and there are additional meetings covering the Quarterly
Tenders as and when necessary. In addition, ad hoc meetings of the
Board to review specific items between the regular scheduled
quarterly meetings can be arranged. Between formal meetings, there
is regular contact with the Portfolio Manager, AIFM, Administrator,
Custodian and Depositary and the Financial Adviser and Corporate
Broker, and an annual strategy day.
Although some of
the Directors hold other listed Board positions, none of these is
for a trading company and the Board is satisfied that they have
sufficient time commitment to carry out their duties for the
Company as evidenced by their attendance during the year which was
as follows:
|
|
Board
Meetings
|
Audit
and Risk Committee Meetings
|
Management
Engagement Committee Meetings
|
Remuneration and
Nomination Committee Meetings
|
Ad
hoc Committee Meetings
|
|
|
Held
|
Attended
|
Held
|
Attended
|
Held
|
Attended
|
Held
|
Attended
|
Held
|
Attended
|
|
|
|
|
|
|
|
|
|
|
|
|
Ashley
Paxton
|
5
|
5
|
5
|
5
|
1
|
1
|
2
|
2
|
24
|
23
|
Sharon
Parr¹
|
|
5
|
5
|
5
|
5
|
1
|
1
|
2
|
2
|
24
|
20
|
Wendy
Dorey²
|
5
|
4
|
5
|
3
|
1
|
1
|
2
|
2
|
24
|
14
|
Claire
Whittet³
|
5
|
4
|
5
|
4
|
1
|
1
|
2
|
-
|
24
|
18
|
Ian
Martin⁴
|
|
5
|
1
|
5
|
2
|
1
|
-
|
2
|
-
|
24
|
6
|
1 Sharon
Parr was appointed 1 November
2022.
2
Wendy Dorey was appointed on 1 February 2023.
3 Claire Whittet resigned on 11 August 2023.
4
Ian Martin resigned on 1
February 2023.
At
the Board meetings, the Directors review the management of the
Company’s assets and liabilities and all other significant matters
so as to ensure that the Directors maintain overall control and
supervision of the Company’s affairs.
Election
of Directors
The
election of Directors is set out in the Directors’ Remuneration
Report.
Board
Performance and Training
On
appointment to the Board, Directors will be offered relevant
training and induction. Training is an on-going matter as is
discussion on the overall strategy of the Company.
On
appointment to the Board, each Director considered the expected
time needed to discharge their responsibilities effectively. The
Directors confirmed that each had sufficient time available and
would inform the Board of any subsequent changes.
Now
that the Company has successfully concluded the process of
replacing the scheduled retirements of the legacy Board, and
brought its number to four, the Board will conduct a board
evaluation process in early 2024, the last review having been
performed in 2020. Whilst this evaluation will initially be
performed internally, the Board intends to subsequently appoint a
firm to conduct an independent board evaluation. To maximise value
for the Company, an independent review will be undertaken as soon
as all Board members are considered to have fully settled and
embedded into their respective roles, no earlier than
2025.
In
respect of the Criminal Finances Act 2017 which has introduced a
new corporate criminal offence (“CCO”) of ‘failing to take
reasonable steps to prevent the facilitation of tax evasion’, the
Board confirms that they are committed to zero tolerance towards
the criminal facilitation of tax evasion.
Retirement
by Rotation
Under
the terms of their appointment, each Director is required to retire
by rotation and be subject to re-election at least every three
years. The Directors are also required to seek re-election if they
have already served for more than nine years. The Company may
terminate the appointment of a Director immediately on serving
written notice and no compensation is payable upon termination of
office as a director of the Company becoming effective. All
Directors typically stand for re-election annually and all were
re-elected with votes in favour in excess of 90% at the
AGM.
Board
Committees and their Activities
Terms of
Reference
All
Terms of Reference of the Board’s Committees are available from the
Administrator upon request.
Management
Engagement Committee
The
Board has established a Management Engagement Committee with formal
duties and responsibilities. The Management Engagement Committee
commits to meeting at least once a year and comprises the entire
Board where Ian Martin served as
chair until his retirement from the Board on 1 February 2023. Wendy
Dorey now chairs the Management Engagement Committee. The
duties and responsibilities include the regular review of the
performance, fees and contractual arrangements with the Portfolio
Manager and other Service Providers and the preparation of the
Committee’s annual opinion as to the Portfolio Manager’s
services.
The
Management Engagement Committee carried out its review of the
performance and capabilities of the Portfolio Manager at its
meeting during the year and the Board recommended the continued
appointment of TwentyFour Asset Management LLP as Portfolio Manager
to be in the best interest of the Company.
The
Board conducts an annual strategy day with the Portfolio Manager at
their offices and did so in November
2023 when they met with various TwentyFour staff and
representatives of Numis. In addition, the Directors have attended
various webinar presentations by the Portfolio Manager.
The
Board considers that the interests of Shareholders, as a whole, are
best served by the ongoing appointment of the AIFM and Custodian
and Depositary to achieve the Company’s investment
objectives.
Audit and
Risk Committee
An
Audit and Risk Committee has been established consisting of all
Directors, where
Ashley Paxton served as chair until
11 August 2023 at which date
Sharon Parr became his
successor. As there were
only 3 Directors of the Company as at 30
September 2023 (4 Directors effective from 1 November 2023), the Board considered it
appropriate that all Directors should be members of the Audit and
Risk Committee. The terms of reference of the Audit and Risk
Committee provide that the committee shall be responsible, amongst
other things, for reviewing the Interim and Annual Financial
Statements, considering the appointment and independence of
external auditors, discussing with the external auditors the scope
of the audit and reviewing the Company’s compliance with the AIC
Code.
Further details
on the Audit and Risk Committee can be found in the Audit and Risk
Committee Report.
Remuneration
and Nomination Committee
The
Remuneration and Nomination Committee has been established
consisting of all Directors. Ashley
Paxton served as chair until 11
August 2023 at which date Sharon
Parr was appointed in his place.
The
Committee met on 6 September 2023 and
presented an analysis of director fees against relevant industry
comparatives. Despite general inflationary pressures, the Committee
proposed only a modest realignment of fees for the Chair of the
Board to £45,000 per annum (from £44,000 per annum) and for the
Chair of the Audit and Risk Committee to £40,000 per annum (from
£38,500 per annum), being the first increment for these two
positions since 2019. The base director fee level and fee for the
Chair of the Management Engagement Committee remain at £35,000 and
£37,000, respectively, having been last reviewed in
2021.
Diversity of the
Board was also discussed and it was noted that the split of 33% men
versus 66% women as at 30 September
2023 remained within the gender diversity guidelines as at
the end of the financial year. The Committee also discussed the
skills and experience of the Board and noted that an additional
director with relevant fixed income experience would be beneficial
to the Board. The Committee subsequently proposed the appointment
of Richard Class as a Director, who
joined the Board on 1 November
2023.
International
Tax Reporting
For
purposes of the US Foreign Account Tax Compliance Act, the Company
registered with the US Internal Revenue Service (“IRS”) as a
Guernsey reporting Foreign
Financial Institution (“FFI”), received a Global Intermediary
Identification Number (E5XSVA.99999.SL.831), and can be found on
the IRS FFI list.
The
Common Reporting Standard (“CRS”) is a global standard for the
automatic exchange of financial account information developed by
the Organisation for Economic Co-operation and Development
(“OECD”), which has been adopted in Guernsey.
The
Board ensures that the Company is compliant with Guernsey regulations and guidance in this
regard. The activities of the Company do not constitute relevant
activities as defined by the Income Tax (Substance Requirements)
(Implementation) Regulations, 2018 (as amended) and as such the
Company was out of scope.
Strategy
The
strategy for the Company is to capture the illiquidity premium that
is associated with ‘off the run’ bond issues. By remaining highly
selective and without conceding on underlying credit quality, the
strategy targets a monthly distribution of 0.5p per share, with all
excess income, as discussed in the Results section of the
Directors’ Report, being distributed to investors at the year end
of the Company.
Internal
Controls
The
Board is ultimately responsible for establishing and maintaining
the Company’s system of internal financial and operating control
and for maintaining and reviewing its effectiveness. The Company’s
risk matrix continues to be the core element of the Company’s risk
management process in establishing the Company’s system of internal
financial and reporting control. The risk matrix is prepared and
maintained by the Board which initially identifies the risks facing
the Company and then collectively assesses the likelihood of each
risk, the impact of those risks and the strength of the controls
operating over each risk. The system of
internal financial and operating control is designed to manage
rather than to eliminate the risk of failure to achieve business
objectives and by their nature can only provide reasonable and not
absolute assurance against misstatement and loss.
These
controls aim to ensure that assets of the Company are safeguarded,
proper accounting records are maintained and the financial
information for publication is reliable. The Board confirms that
there is an ongoing process for identifying, evaluating and
managing the significant risks faced by the Company.
This
process has been in place for the year under review and up to the
date of approval of this Annual Report and Audited Financial
Statements and is reviewed by the Board and is in accordance with
the AIC Code.
The
AIC Code requires Directors to conduct at least annually a review
of the Company’s system of internal financial and operating
control, covering all controls, including financial, operational,
compliance and risk management. The Board has evaluated the systems
of internal controls of the Company. In particular, it has prepared
a process for identifying and evaluating the significant risks
affecting the Company and the policies by which these risks are
managed. The Board also considers whether the appointment of an
internal auditor is required and has determined that there is no
requirement for a direct internal audit function.
The
Board has delegated the day-to-day responsibilities for the
management of the Company’s investment portfolio, the provision of
custodial and depositary services and administration, accounting,
registrar and company secretarial functions including the
independent calculation of the Company’s NAV and the production of
the Annual Report and Financial Statements which are independently
audited.
Formal
contractual agreements have been put in place between the Company
and providers of these services. Even though the Board has
delegated responsibility for these functions, it retains
accountability for these functions and is responsible for the
systems of internal control. At each quarterly Board meeting,
compliance reports are provided by the Administrator, Company
Secretary, Portfolio Manager, AIFM and Depositary. The Board also
receives confirmation from the Administrator of its accreditation
under its Service Organisation Controls 1 report.
Significant
Shareholdings
Shareholders with
holdings of more than 3.0% of the Shares of the Company at
12 December 2023 were as
follows:
|
Number of
shares
|
Percentage
of issued share capital
|
Huntress (CI)
Nominees Limited
|
22,703,262
|
9.29%
|
Hargreaves
Lansdown (Nominees) Limited <15492>
|
14,643,290
|
5.99%
|
Hargreaves
Lansdown (Nominees) Limited <Vra>
|
11,799,355
|
4.83%
|
Interactive
Investor Services Nominees Limited
|
11,425,782
|
4.68%
|
Lawshare Nominees
Limited
|
9,751,223
|
3.99%
|
W B
Nominees Limited
|
8,306,666
|
3.40%
|
Hargreaves
Lansdown (Nominees) Limited <Hlnom>
|
7,875,730
|
3.22%
|
Those
invested directly or indirectly in 3.0% or more of the issued share
capital of the Company will have similar and proportionate voting
rights as other holders of the Shares.
Independent
Auditor
Following a
competitive tender process, a resolution for the reappointment of
PricewaterhouseCoopers CI LLP was proposed and approved at the AGM
on 11 August 2023.
Signed on behalf
of the Board of Directors on 14 December
2023 by:
Ashley Paxton Sharon
Parr
Chairman Director
STATEMENT
OF DIRECTORS’ RESPONSIBILITIES
The
Directors are responsible for preparing the Annual Report and the
Audited Financial Statements in accordance with applicable
Guernsey law and
regulations.
The
Companies (Guernsey) Law, 2008
requires the Directors to prepare financial statements for each
financial year. Under that law, they have elected to prepare the
financial statements in accordance with International Financial
Reporting Standards (“IFRS”) and applicable law.
The
Financial Statements are required by law to give a true and fair
view of the state of affairs of the Company and of the profit or
loss of the Company for that year.
In
preparing these Financial Statements, the Directors are required
to:
-
select suitable accounting
policies and then apply them consistently;
-
make judgements and estimates
that are reasonable and prudent;
-
state whether applicable
accounting standards have been followed, subject to any material
departures disclosed and explained in the Financial Statements;
and
-
prepare the Financial Statements
on the going concern basis unless it is inappropriate to presume
that the Company will continue in business.
The
Directors confirm that they have complied with these requirements
in preparing the Financial Statements.
The
Directors are responsible for keeping proper accounting records
which disclose with reasonable accuracy at any time the financial
position of the Company and to enable them to ensure that the
Financial Statements have been properly prepared in accordance with
The Companies (Guernsey) Law,
2008. They have general responsibility for taking such steps as are
reasonably open to them to safeguard the assets of the Company and
to prevent and detect fraud and other irregularities.
So
far as the Directors are aware, there is no relevant audit
information of which the Company’s auditor is unaware, and each
Director has taken all the steps that he or she ought to have taken
as a Director in order to make himself or herself aware of any
relevant audit information and to establish that the Company’s
auditor is aware of that information.
The
Directors are responsible for the oversight of the maintenance and
integrity of the corporate and financial information in relation to
the Company website; the work carried
out by the auditor does not involve consideration of these matters
and, accordingly, the auditor accepts no responsibility for any
changes that may have occurred to the financial statements since
they were initially presented on the website.
Legislation in
Guernsey governing the preparation
and dissemination of financial statements may differ from
legislation in other jurisdictions.
The
Directors confirm that to the best of their knowledge:
(a)
The
Financial Statements have been prepared in accordance with IFRS and
give a true and fair view of the assets, liabilities, financial
position and profit or loss of the Company as at and for the year
ended 30 September 2023.
(b)
The
Annual Report includes information detailed in the Chairman’s
Statement, Portfolio Manager’s Report, Strategic Report, Directors’
Report, Statement of Directors’ Responsibilities, Directors’
Remuneration Report, Audit and Risk Committee Report, Alternative
Investment Fund Manager’s Report and Depositary Statement provides
a fair review of the information required by:
(i)
DTR
4.1.8 and DTR 4.1.9 of the Disclosure and Transparency Rules, being
a fair review of the Company business and a description of the
principal risks and uncertainties facing the Company;
and
(ii)
DTR
4.1.11 of the Disclosure and
Transparency Rules, being an indication of important events that
have occurred since the end of the financial year and the likely
future development of the Company.
In
the opinion of the Board, the Financial Statements taken as a
whole, are fair, balanced and understandable and provide the
information necessary to assess the Company’s position and
performance, business model and strategy.
By
order of the Board,
Ashley Paxton Sharon
Parr
Chairman Director
14 December 2023
DIRECTORS’
REMUNERATION REPORT
The
Directors' Remuneration Report has been prepared in accordance with
the AIC Code.
Remuneration
Policy
The
Company's policy in regard to Directors' remuneration is to ensure
that the Company maintains a competitive fee structure in order to
recruit, retain and motivate non-executive Directors of excellent
quality in the overall interests of Shareholders.
It is
the responsibility of the Remuneration and Nomination Committee to
determine and approve the Directors' remuneration, who will have
given the matter proper consideration, having regard to the level
of fees payable to non-executive Directors in the industry
generally, the role that individual Directors fulfil in respect of
Board and Committee responsibilities and the time committed to the
Company's affairs. The Chairman's remuneration is decided
separately and is approved by the Board as a whole.
No
element of the Directors' remuneration is performance related, nor
does any Director have any entitlement to pensions, share options
or any long-term incentive plans from the Company.
Remuneration
The
Directors of the Company are remunerated for their services at such
a rate as the Directors determine, provided that the aggregate
amount of such fees does not exceed £250,000 per annum.
Directors are
remunerated in the form of fees, payable quarterly in arrears, to
the Director personally. No Directors have been paid additional
remuneration by the Company outside their normal Directors’ fees
and expenses.
With
respect to the year ended 30 September
2023 and 30 September 2022,
the Directors received the following remuneration in the form of
Directors’ fees:
|
|
|
|
|
|
2023
|
2022
|
Ashley Paxton
(Chair of the Board)¹
|
|
|
|
£39,348
|
£34,295
|
Sharon Parr
(Audit and Risk Committee Chair)²
|
|
|
£32,660
|
-
|
Wendy
Dorey (MEC Chair)³
|
|
|
|
£23,613
|
-
|
Claire Whittet
(resigned 11 August 2023)
|
|
|
£38,063
|
£44,000
|
Ian
Martin (resigned 1 February 2023)
|
|
|
£12,392
|
£37,000
|
Christopher Legge
(resigned 31 January 2022)
|
|
|
-
|
£12,895
|
Total
|
|
|
|
|
|
£146,076
|
£128,190
|
1 Appointed Chair of
the Board on 11 August
2023.
2 Appointed Audit
and Risk Committee Chair and Remuneration and Nomination Committee
Chair on 11 August 2023.
3 Appointed
Management Engagement Committee Chair on 11
August 2023.
As
discussed in the Directors’ Report, some Directors’ fees increased
from 1 October 2023.
Appropriate
Directors' and Officers’ liability insurance cover is maintained by
the Company on behalf of the Directors.
The
Directors were appointed as non-executive Directors by letters
issued on the respective dates of appointment. Each Director’s
appointment letter provides that, upon the termination of his/her
appointment, that he/she must resign in writing and all records
remain the property of the Company. The Directors’ appointments can
be terminated in accordance with the Articles and without
compensation.
There
is no notice period specified in the Articles for the removal of
Directors. The Articles provide that the office of Director shall
be terminated by, among other things: (a) written resignation; (b)
unauthorised absences from board meetings for six months or more;
(c) unanimous written request of the other Directors; and (d) an
ordinary resolution of the Company.
Under
the terms of their appointment, each Director is required to retire
by rotation and be subject to re-election at least every three
years but have opted for annual re-election. The Directors are
required to seek re-election if they have already served for more
than nine years. The Company may terminate the appointment of a
Director immediately on serving written notice and no compensation
is payable upon termination of office as a director of the Company
becoming effective.
The
amounts payable to Directors shown in note 14 to the Financial
Statements are for services as non-executive Directors.
No
Director has a service contract with the Company, nor are any such
contracts proposed.
Signed on behalf
of the Board of Directors on 14 December
2023 by:
Sharon Parr Ashley
Paxton
Chair,
Remuneration and Nomination Committee Director
AUDIT AND
RISK COMMITTEE REPORT
Below
we present the Audit and Risk Committee's Report, setting out the
responsibilities of the Audit and Risk Committee and its key
activities for the year ended 30 September
2023.
The
Audit and Risk Committee has reviewed the appropriateness of the
Company’s system of risk management and internal financial and
operating controls, the robustness and integrity of the Company’s
financial reporting, along with the external audit process. The
Audit and Risk Committee has devoted time to ensuring that controls
and processes have been properly established, documented and
implemented. The Company’s
risk exposure and the effectiveness of its risk management and
internal control systems are contained within the Company’s risk
matrix, and the risk matrix was regularly reviewed by the Audit and
Risk Committee during the year and subsequently by the
Board.
During the course
of the year, the information that the Audit and Risk Committee has
received has been timely and clear and has enabled the Committee to
discharge its duties effectively.
Role and
Responsibilities
The
primary function of the Audit and Risk Committee is to assist the
Board in fulfilling its oversight responsibilities. This includes
reviewing the financial reports and other financial information and
any significant financial judgement contained therein, before
publication.
In
addition, on a continuing basis, the Audit and Risk Committee
reviews the systems of internal financial and operating controls
which the Administrator, Portfolio Manager, AIFM, Custodian,
Depositary and the Board have established with respect to finance,
accounting, risk management, compliance, fraud and audit. The Audit
and Risk Committee also reviews the accounting and financial
reporting processes, along with reviewing the roles, independence
and effectiveness of the external auditor.
The
ultimate responsibility for reviewing and approving the annual and
interim financial statements remains with the Board.
The
Audit and Risk Committee's full terms of reference can be obtained
by contacting the Company's Administrator.
Risk
Management and Internal Control
The
Board, as a whole, considers the nature and extent of the Company’s
risk management framework and the risk profile that is acceptable
in order to achieve the Company’s strategic objectives. As a
result, it is considered that the Board has fulfilled its
obligations under the AIC Code.
The
Audit and Risk Committee continues to be responsible for reviewing
the adequacy and effectiveness of the Company’s on-going risk
management systems and processes. Its system of internal controls,
along with its design and operating effectiveness, is subject to
review by the Audit and Risk Committee through reports received
from the Portfolio Manager, AIFM and Custodian and Depositary,
along with those from the Administrator and external
auditor.
Fraud,
Bribery and Corruption
The
Board has relied on the overarching requirement placed on the
Service Providers under the relevant agreements to comply with
applicable law, including anti-bribery laws. A review of the
Service Provider policies took place at the Management Engagement
Committee Meeting on 3 March 2023.
The Board receives confirmation from all Service Providers
that they have not
been involved in any fraud, bribery or
corruption.
Financial
Reporting and Significant Financial Issues
The
Audit and Risk Committee assesses whether suitable accounting
policies have been adopted and whether the Portfolio Manager has
made appropriate estimates and judgements. The Audit and Risk
Committee reviews accounting papers prepared by the Portfolio
Manager and Administrator which provide details on the main
financial reporting judgements.
The
Audit and Risk Committee also reviews reports by the external
auditors which highlight any issues with respect to the work
undertaken on the audit.
The
significant areas considered during the year by the Audit and Risk
Committee in relation to the Financial Statements and how they were
addressed are detailed below:
(i)
Valuation of investments:
The
Company’s investments had a fair value of £176,435,682 as at
30 September 2023 with 240,824,331
shares in issue (30 September 2022:
£148,915,038 with 216,213,518 shares in issue) and
represents the key
constituent of net assets of the
Company. These investments are valued in accordance with the
Accounting Policies set out in notes 2 and 3 to the Financial
Statements. The Audit and Risk Committee considered the valuation
of the investments held by the Company as at 30 September 2023 to be reasonable based on
information provided by the Portfolio Manager, AIFM, Administrator,
Custodian and Depositary on their processes for the valuation of
these investments. In order to obtain more accurate pricing
information a range of pricing sources, including model based
valuations for a small minority of positions, has been
used.
(ii)
Income recognition:
The
Audit and Risk Committee considered the calculation of income from
investments recorded in the Financial Statements for the year ended
30 September 2023. As disclosed in
note 3(ii)(b) of the Notes to the Financial Statements, the
estimated life of credit securities is determined by the Portfolio
Manager, and can impact the effective interest rate of the credit
securities which in turn could impact the calculation of income
from investments. The Board reviews relevant
information supplied by the Portfolio Manager, on an ongoing basis,
which presents the expected life of the Company's investments and
have found them to be reasonable based on the explanations provided
and information obtained from the Portfolio Manager. The auditor
also reviews the processes and methodology supporting this
information. The Audit and Risk Committee was satisfied that income
was appropriately stated in all material aspects in the Financial
Statements.
Following a review of the
presentations and reports from the Portfolio Manager and
Administrator and consulting where necessary with the external
auditor, the Audit and Risk Committee is satisfied that the
Financial Statements appropriately address, both in respect to the
amounts reported and the disclosures, the critical judgements and
key estimates. The Audit and Risk Committee is also satisfied that
the significant assumptions used for determining the value of
assets and liabilities have been appropriately reviewed, challenged
and are sufficiently robust.
To understand and monitor the
Company stakeholder universe, the Audit and Risk Committee
maintains a stakeholder matrix. This aims to identify stakeholder
interests and monitor how these evolve and potentially impact the
Company today and in the future. The matrix is reviewed at least
annually.
The
Company’s reporting currency is sterling even though a significant
proportion of the investments owned are denominated in other
currencies. The Company operates a hedging strategy designed to
mitigate the impact of foreign currency rate changes on the
performance of the Company. The Audit and Risk Committee has used
information from the Administrator and Portfolio Manager to satisfy
itself concerning the effectiveness of the hedging process, as well
as to confirm that realised and unrealised foreign currency gains
and losses have been correctly recorded,
and to reaffirm that the use of
sterling as the Company’s functional currency remains
appropriate.
At
the Audit and Risk Committee meeting to review the Annual Report
and Audited Financial Statements, the Audit and Risk Committee
received a report and presentation from its external auditor on the
key findings from its audit, and the Audit and Risk Committee is
consequently satisfied that the external auditor has fulfilled its
responsibilities with diligence and professional scepticism. The
Audit and Risk Committee advised the Board that these Annual
Financial Statements, taken as a whole, are fair, balanced and
understandable.
The
Audit and Risk Committee is satisfied that the judgements made by
the Portfolio Manager and Administrator are reasonable, and that
appropriate disclosures have been included in the Financial
Statements.
External
Auditor
The
Audit and Risk Committee has responsibility for making a
recommendation on the appointment, re-appointment and removal of
the external auditor.
During the year,
the Audit and Risk Committee received and reviewed audit plans and
reports from the external auditor. As standard practice, the
external auditor meets privately with the Audit and Risk Committee
without the Portfolio Manager and other Service Providers being
present.
To
assess the effectiveness of the external audit process, the auditor
was asked to articulate the steps that they have taken to ensure
objectivity and independence, including where the auditor provides
non-audit services. The Audit and Risk Committee monitors the
auditor’s performance, behaviour and effectiveness during the
exercise of their duties, which informs the decision to recommend
reappointment on an annual basis. Other than the interim review for
the period ended 31 March 2023, no
non-audit services have been performed for the Company by the
auditor.
As
the audit for the year ended 30 September
2022 was the ninth annual audit that PricewaterhouseCoopers
CI LLP (“PwC”) performed in respect of the Company, a full and
comprehensive competitive audit tender was undertaken during the
year. At an Audit and Risk Committee meeting held 30 June 2023, formal presentations were received
from the short-listed firms and after full and detailed
consideration, it was resolved that PwC be recommended to the Board
for reappointment as auditor.
The
Company is considered to be a market traded company based on the
Institute of Chartered Accountants in England and Wales Crown Dependencies’ Audit
Rules and Guidance. As such, the auditors are required to apply the
FRC Ethical Standards of 2019.
The
FRC Ethical Standards require that the audit engagement leaders on
listed entities are rotated at least every 5 years. Roland Mills served 5 years as the Company's
audit engagement leader and has rotated off. He is replaced by
Adrian Peacegood for the audit of the Financial Statements for the
year ended 30 September
2023.
The
following table summarises the remuneration paid to PwC and to
other PwC member firms for audit and non-audit services in respect
of the year ended 30 September 2023
and for the year ended 30 September
2022.
|
|
|
|
|
Year
ended
30.09.23
|
Year
ended
30.09.22
|
PricewaterhouseCoopers
CI LLP - Assurance work
|
|
|
£
|
|
£
|
-
Annual audit of the Company
|
|
|
|
109,250
|
|
96,500
|
-
Interim review
|
|
|
|
|
23,320
|
|
21,200
|
|
|
|
|
|
|
|
|
|
PricewaterhouseCoopers
CI LLP - Non assurance work
|
|
|
|
|
- Tax
consulting and compliance services
|
|
|
nil
|
|
nil
|
-
Ratio of assurance to non-assurance work
|
|
|
100%
/ nil
|
|
100%
/ nil
|
For
any questions on the activities of the Audit and Risk Committee not
addressed in the foregoing, a member of the Audit and Risk
Committee remains available to attend each AGM to respond to such
questions.
The
Audit and Risk Committee and Risk Report was approved by the Audit
and Risk Committee and signed on behalf by:
Sharon Parr
Chair, Audit and
Risk Committee
14 December 2023
ALTERNATIVE
INVESTMENT FUND MANAGER’S REPORT
Apex
Fundrock Limited (previously called Maitland Institutional Services
Ltd) acts as the Alternative Investment Fund Manager (“AIFM”) of
TwentyFour Select Monthly Income Fund Limited (“the Company”)
providing portfolio management and risk management services to the
Company.
The
AIFM has delegated the following of its alternative investment fund
management functions:
-
It has delegated the portfolio
management function for listed and unlisted investments to
TwentyFour Asset Management LLP.
The AIFM is required by the
Alternative Investment Fund Managers Directive 2011, 61/EU (the
“AIFM Directive”) and all applicable rules and regulations
implementing the AIFM Directive in the UK (the “AIFM”
Rules):
-
to make the annual report
available to investors and to ensure that the annual report is
prepared in accordance with applicable accounting standards, the
Company’s articles of incorporation and the AIFM Rules and that the
annual report is audited in accordance with International Standards
on Auditing;
-
be responsible for the proper
valuation of the Company’s assets, the calculation of the Company’s
net asset value and the publication of the Company’s net asset
value;
-
to make available to the
Company’s Shareholders, a description of all fees, charges and
expenses and the amounts thereof, which have been directly or
indirectly borne by them; and
-
ensure that the Company’s
Shareholders have the ability to redeem their share in the capital
of the Company in a manner consistent with the principle of fair
treatment of investors under the AIFM Rules and in accordance with
the Company’s redemption policy and its
obligations.
The
AIFM is required to ensure that the annual report contains a report
that shall include a fair and balanced review of the activities and
performance of the Company, containing also a description of the
principal risks and investment or economic uncertainties that the
Company might face.
AIFM
Remuneration
The
AIFM is subject to a staff remuneration policy which meets the
requirements of the AIFM Directive. The policy is designed to
ensure remuneration practices are consistent with, and promote,
sound and effective risk management. It does not encourage
risk-taking which is inconsistent with the risk profiles, rules or
instrument of incorporation of the funds managed, and does not
impair the AIFM’s compliance with its duty to act in the best
interests of the funds it manages.
The
AIFM has reviewed the Remuneration Policy and its application in
the last year which has resulted in no material changes to the
policy or irregularities to process.
This
disclosure does not include staff undertaking portfolio management
activities as these are undertaken by TwentyFour Asset Management
LLP (the “Portfolio Manager”). The Portfolio Manager is required to
make separate public disclosure as part of their obligations under
the Capital Requirements Directive.
The AIFM also acts as Authorised
Corporate Director (“ACD”) for non-Alternative Investment Funds
(“AIFs”). It is required to disclose the total remuneration it pays
to its staff during the financial year of the Company, split into
fixed and variable remuneration, with separate aggregate disclosure
for staff whose actions may have a material impact to the risk
profile of a fund or the AIFM itself. This includes executives,
senior risk and compliance staff and certain senior
managers.
|
Number of
Beneficiaries
£
|
Total
Remuneration Paid
£
|
Fixed
Remuneration
£
|
Variable
Remuneration Paid
£
|
Total
remuneration paid by the ACD to its staff
|
17
|
2,005,000
|
1,446,000
|
559,000
|
Remuneration
paid to employees of the ACD who are material risk
takers
|
6
|
1,147,000
|
689,000
|
458,000
|
Further
information is available in the AIFM’s Remuneration Policy
Statement which can be obtained from our website or, on request
free of charge, by writing to the registered office of the
AIFM.
In so
far as the AIFM is aware:
-
there is no relevant audit
information of which the auditor of the Company or the Board of
Directors of the Company are unaware; and
-
the AIFM has taken all steps that
it ought to have taken to make itself aware of any relevant audit
information and to establish that the auditor is aware of that
information.
We
hereby certify that this report is made on behalf of the AIFM, Apex
Fundrock Ltd.
C
O’Keeffe
P
Foley- Brickley
Directors
Apex
Fundrock Ltd
14 December 2023
DEPOSITARY
STATEMENT
For
the year ended 30 September
2023
Report of
the Depositary to the Shareholders
Northern Trust
(Guernsey) Limited has been
appointed as Depositary to TwentyFour Select Monthly Income Fund
Limited (the “Company”) in accordance with the requirements of
Article 36 and Articles 21(7), (8) and (9) of the Directive
2011/61/EU of the European Parliament and of the Council of
8 June 2011 on Alternative Investment
Fund Managers and amending Directives 2003/41/EC and 2009/65/EC and
Regulations (EC) No 1060/2009 and (EU) No 1095/2010 (the “AIFM
Directive”).
We
have enquired into the conduct of Apex Fundrock Limited (previously
called Maitland Institutional Services Limited) (the “AIFM”) and
the Company for the year ended 30 September
2023, in our capacity as Depositary to the
Company.
This
report including the review provided below has been prepared for
and solely for the Shareholders in the Company. We do not, in
giving this report, accept or assume responsibility for any other
purpose or to any other person to whom this report is
shown.
Our
obligations as Depositary are stipulated in the relevant provisions
of the AIFM Directive and the relevant sections of Commission
Delegated Regulation (EU) No 231/2013 (collectively the “AIFMD
legislation”) and The Authorised Closed-Ended Investment Scheme
Rules and Guidance, 2021.
Amongst these
obligations is the requirement to enquire into the conduct of the
AIFM and the Company and their delegates in each annual accounting
period.
Our
report shall state whether, in our view, the Company has been
managed in that period in accordance with the AIFMD legislation. It
is the overall responsibility of the AIFM and the Company to comply
with these provisions. If the AIFM, the Company or their delegates
have not so complied, we as the Depositary will state why this is
the case and outline the steps which we have taken to rectify the
situation.
The
Depositary and its affiliates are or may be involved in other
financial and professional activities which may on occasion cause a
conflict of interest with its roles with respect to the Company.
The Depositary will take reasonable care to ensure that the
performance of its duties will not be impaired by any such
involvement and that any conflicts which may arise will be resolved
fairly and any transactions between the Depositary and its
affiliates and the Company shall be carried out as if effected on
normal commercial terms negotiated at arm’s length and in the best
interests of Shareholders.
Basis of
Depositary Review
The
Depositary conducts such reviews as it, in its reasonable
discretion, considers necessary in order to comply with its
obligations and to ensure that, in all material respects, the
Company has been managed (i) in accordance with the limitations
imposed on its investment and borrowing powers by the provisions of
its constitutional documentation and the appropriate regulations
and (ii) otherwise in accordance with the constitutional
documentation and the appropriate regulations. Such reviews vary
based on the type of fund, the assets in which a fund invests and
the processes used, or experts required, in order to value such
assets.
Review
In
our view, the Company has been managed during the year, in all
material respects:
(i)
in accordance
with the limitations imposed on the investment and borrowing powers
of the Company by the constitutional document; and by the AIFMD
legislation; and
(ii)
otherwise in accordance with the provisions of the constitutional
document; and the AIFMD legislation.
For
and on behalf of
Northern Trust
(Guernsey) Limited
14 December 2023
INDEPENDENT
AUDITOR’S REPORT
TO
THE MEMBERS OF TWENTYFOUR SELECT MONTHLY INCOME FUND
LIMITED
Report
on the audit of the financial statements
Our
opinion
In
our opinion, the financial
statements give a true and fair view of the financial position of
TwentyFour Select Monthly Income Fund Limited (the “company”) as at
30 September 2023, and of its
financial performance and its cash flows for the year then ended in
accordance with International Financial Reporting Standards and
have been properly prepared in accordance with the requirements of
The Companies (Guernsey) Law,
2008.
What we have audited
The
company’s financial statements comprise:
·
The
statement of financial position as at 30
September 2023;
·
the
statement of comprehensive income for the year then
ended;
·
the
statement of changes in equity for the year then ended;
·
the
statement of cash flows for the year then ended; and
·
the
notes to the financial statements, which include significant
accounting policies and other explanatory information.
Basis for
opinion
We
conducted our audit in accordance with International Standards on
Auditing (“ISAs”). Our responsibilities under those standards are
further described in the Auditor’s
responsibilities for the audit of the financial
statements section of our
report.
We
believe that the audit evidence we have obtained is sufficient and
appropriate to provide a basis for our opinion.
Independence
We
are independent of the company in accordance with the
ethical
requirements that are relevant to our audit of the financial
statements of the company, as required by the Crown Dependencies’
Audit Rules and Guidance. We have fulfilled our other ethical
responsibilities in accordance with these requirements.
Our audit
approach
Overview
Audit
scope
·
The
company is incorporated and based in Guernsey.
·
We
conducted our audit of the financial statements from information
provided by Northern Trust International Fund Administration
Services (Guernsey) Limited (the “Administrator”) to whom the Board
of directors (the “Board”) has delegated the administration
functions. The company engages TwentyFour Asset Management LLP (the
“Portfolio Manager”) to manage the company’s investment portfolio.
We had significant interaction with both the Administrator and the
Portfolio Manager during our audit.
·
We
conducted all our audit work in Guernsey.
·
We
tailored the scope of our audit taking into account the types of
investments held by the company, the accounting processes and
controls, and the industry in which the company
operates.
|
Key
audit matters
|
Materiality
·
Overall
materiality: £3.63 million (2022: £3.03 million) based on 2% of net
assets.
·
Performance
materiality: £2.72 million (2022: £2.27 million).
|
The scope of our audit
As
part of designing our audit, we determined materiality and assessed
the risks of material misstatement in the financial statements. In
particular, we considered where the directors made subjective
judgements; for example, in respect of significant accounting
estimates that involved making assumptions and considering future
events that are inherently uncertain. As in all of our audits, we
also addressed the risk of management override of internal
controls, including among other matters, consideration of whether
there was evidence of bias that represented a risk of material
misstatement due to fraud.
Key audit matters
Key
audit matters are those matters that, in the auditor’s professional
judgement, were of most significance in the audit of the financial
statements of the current period and include the most significant
assessed risks of material misstatement (whether or not due to
fraud) identified by the auditor, including those which had the
greatest effect on: the overall audit strategy; the allocation of
resources in the audit; and directing the efforts of the engagement
team. These matters, and any comments we make on the results of our
procedures thereon, were addressed in the context of our audit of
the financial statements as a whole, and in forming our opinion
thereon, and we do not provide a separate opinion on these
matters.
This
is not a complete list of all risks identified by our
audit.
Key audit matter
|
How our audit addressed the key audit matter
|
Valuation of Investments
|
|
Investments are
designated as financial assets at fair value through profit or loss
on the statement of financial position with a fair value of £176.4
million as at 30 September 2023.
The
company’s investment policy is to invest in a diversified portfolio
of credit securities which are measured at fair valued in
accordance with the policies set out in note 2(e) to the financial
statements. The fair value of investments and movement therein are
further disclosed in notes 9 and 17 respectively to the financial
statements.
Investments
represent a significant balance on the statement of financial
position. To determine the fair value of these investments, the
Portfolio Manager obtains prices from independent price vendors. If
these are unavailable, the Portfolio manager will obtain prices
from third party brokers or dealers for the relevant investments
which may be indicative rather than tradable. Where no third party
price is available, the Portfolio Manager will determine the
valuation based on either comparable arm's length transactions,
referenced to other securities that are substantially the same,
discounted cash flow analysis or other valuation techniques
commonly used by market participants. During the year, the
Portfolio Manager engaged an independent valuation expert to
provide the valuation of the level 3 investments, these amounted
to
£5.59 million as at 30
September 2023.
Investment
valuations are subject to estimates and assumptions underlying each
security as detailed under note 3(ii) to the financial
statements.
Owing
to the level of subjectivity that could be applied in fair valuing
investments, the risk of manipulation or error could be material
and as a result we have designated the valuation of investments as
a key audit matter.
|
We
obtained an understanding of and evaluated the internal control
environment in place at the Administrator and the Portfolio Manager
over the valuation of investments.
We
assessed compliance of the accounting policy for investment
valuation with International Financial Reporting
Standards.
We
independently repriced all of the company’s investment portfolio
using our asset pricing team. Prices were obtained by the pricing
team from a range of independent sources, including exchange traded
and consensus prices:
Where
were unable to obtain independent prices or where initial tolerable
variance thresholds per investment (i.e. the initial threshold for
differences between the prices reported and the repricing obtained
over which we undertake further investigation), the engagement team
sought and received supporting evidence for these specific prices
from the Administrator and/or the Portfolio Manager.
In
doing so, we also assessed the independence, reputation, and
reliability of any sources of the supporting evidence provided in
these instances. All variances exceeding our tolerable thresholds
were evaluated based on supporting evidence obtained.
In
order to determine the ongoing reliability of the investment
valuations from year to year, we also, for a sample of investment
disposals, compared the disposal price to the most recently
recorded valuation prior to the disposal, which allowed us to
assess the reliability of the valuation data at that
point.
Where
during the year, the Portfolio Manager has engaged an external
third party expert to value level 3 investments:
We
understood the valuation methodology. Selected a sufficient and
appropriate sample and obtained the models directly from the
independent valuation expert for the selected sample;
We
understood how the inputs were derived and agreed the valuation
inputs, such as collateral loan amounts, interest rates and
maturity dates to the underlying source data for the selected
sample;
We
assessed the appropriateness of the selected valuation methodology,
being a discounted cash flow model;
With
respect to the selected sample , we engaged our auditor’s expert to
assess the methodology and assumptions (such as prepayments,
defaults and the discount rate) used by the independent valuation
expert in determining the fair value of a material investment. They
also checked the mathematical accuracy of the valuation models
sampled; and
We
assessed the independence, reputation, competence and objectivity
of the independent valuation expert and reliability of their work
through reviewing their terms of engagement, industry research and
discussion with our auditor’s expert.
Based
on our work performed, we did not identify any material
matters to report
to those charged with governance.
|
|
|
How we tailored the audit scope
We
tailored the scope of our audit to ensure that we performed enough
work to be able to give an opinion on the financial statements as a
whole, taking into account the structure of the company the
accounting processes and controls, and the industry in which the
company operates, and we considered the risk of climate change and
the potential impact thereof on our audit approach.
Materiality
The
scope of our audit was influenced by our application of
materiality. We set certain quantitative thresholds for
materiality. These, together with qualitative considerations,
helped us to determine the scope of our audit and the nature,
timing and extent of our audit procedures on the individual
financial statement line items and disclosures and in evaluating
the effect of misstatements, both individually and in aggregate on
the financial statements as a whole.
Based
on our professional judgement, we determined materiality for the
financial statements as a whole as follows:
Overall materiality
|
£3.63
million (2022: £3.03 million)
|
How we determined it
|
2% of
net assets
|
Rationale for benchmark applied
|
We
believe that net assets is the most appropriate benchmark because
this is the key metric of interest to investors. It is also a
generally accepted measure used for companies in this
industry.
|
We
use performance materiality to reduce to an appropriately low level
the probability that the aggregate of uncorrected and undetected
misstatements exceeds overall materiality. Specifically, we use
performance materiality in determining the scope of our audit and
the nature and extent of our testing of account balances, classes
of transactions and disclosures, for example in determining sample
sizes. Our performance materiality was 75% (2022: 75%) of overall
materiality, amounting to £2.72 million (2022: £2.27 million) for
the company financial statements.
In
determining the performance materiality, we considered a number of
factors – the history of misstatements, risk assessment and
aggregation risk and the effectiveness of controls - and concluded
that an amount at the upper end of our normal range was
appropriate.
We
agreed with the Audit Committee that we would report to them
misstatements identified during our audit above £181,500 (2022:
£151,000) as well as misstatements below that amount that, in our
view, warranted reporting for qualitative reasons.
Reporting
on other information
The other information comprises all the information included in the
Annual Report and Audited Financial Statements
(the “Annual
Report”) but does not include the financial statements and our
auditor’s report thereon. Our opinion on
the financial statements does not cover the other information and
we do not express any form of assurance conclusion
thereon.
In
connection with our audit of the financial statements, our
responsibility is to read the other information and, in doing so,
consider whether the other information is materially inconsistent
with the financial statements or our knowledge obtained in the
audit, or otherwise appears to be materially misstated. If, based
on the work we have performed, we conclude that there is a material
misstatement of this other information, we are required to report
that fact. We have nothing to report based on these
responsibilities.
Responsibilities
for the financial statements and the audit
Responsibilities of the directors for the financial
statements
As
explained more fully in the Statement of Directors’
Responsibilities, the directors are responsible for the preparation
of the financial statements that give a true and fair view in
accordance with International Financial Reporting Standards, the
requirements of Guernsey law and
for such internal control as the directors determine is necessary
to enable the preparation of financial statements that are free
from material misstatement, whether due to fraud or
error.
In
preparing the financial statements, the directors are responsible
for assessing the company’s ability to continue as a going concern,
disclosing, as applicable, matters related to going concern and
using the going concern basis of accounting unless the directors
either intend to liquidate the company or to cease operations, or
have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the financial
statements
Our
objectives are to obtain reasonable assurance about whether the
financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an
auditor’s report that includes our opinion. Reasonable assurance is
a high level of assurance, but is not a guarantee that an audit
conducted in accordance with ISAs will always detect a material
misstatement when it exists. Misstatements can arise from fraud or
error and are considered material if, individually or in aggregate,
they could reasonably be expected to influence the economic
decisions of users taken on the basis of these financial
statements.
Our
audit testing might include testing complete populations of certain
transactions and balances, possibly using data auditing techniques.
However, it typically involves selecting a limited number of items
for testing, rather than testing complete populations. We will
often seek to target particular items for testing based on their
size or risk characteristics. In other cases, we will use audit
sampling to enable us to draw a conclusion about the population
from which the sample is selected.
As
part of an audit in accordance with ISAs, we exercise professional
judgement and maintain professional scepticism throughout the
audit. We also:
·
Identify and
assess the risks of material misstatement of the financial
statements, whether due to fraud or error, design and perform audit
procedures responsive to those risks, and obtain audit evidence
that is sufficient and appropriate to provide a basis for our
opinion. The risk of not detecting a material misstatement
resulting from fraud is higher than for one resulting from error,
as fraud may involve collusion, forgery, intentional omissions,
misrepresentations, or the override of internal control.
·
Obtain an
understanding of internal control relevant to the audit in order to
design audit procedures that are appropriate in the circumstances,
but not for the purpose of expressing an opinion on the
effectiveness of the company’s internal control.
·
Evaluate the
appropriateness of accounting policies used and the reasonableness
of accounting estimates and related disclosures made by the
directors.
·
Conclude on the
appropriateness of the directors’ use of the going concern basis of
accounting and, based on the audit evidence obtained, whether a
material uncertainty exists related to events or conditions that
may cast significant doubt on the company’s ability to continue as
a going concern over a period of at least twelve months from the
date of approval of the financial statements. If we conclude that a
material uncertainty exists, we are required to draw attention in
our auditor’s report to the related disclosures in the financial
statements or, if such disclosures are inadequate, to modify our
opinion. Our conclusions are based on the audit evidence obtained
up to the date of our auditor’s report. However, future events or
conditions may cause the company to cease to continue as a going
concern.
·
Evaluate the
overall presentation, structure and content of the financial
statements, including the disclosures, and whether the financial
statements represent the underlying transactions and events in a
manner that achieves fair presentation.
We
communicate with those charged with governance regarding, among
other matters, the planned scope and timing of the audit and
significant audit findings, including any significant deficiencies
in internal control that we identify during our audit.
We
also provide those charged with governance with a statement that we
have complied with relevant ethical requirements regarding
independence, and to communicate with them all relationships and
other matters that may reasonably be thought to bear on our
independence, and where applicable, related safeguards.
From
the matters communicated with those charged with governance, we
determine those matters that were of most significance in the audit
of the financial statements of the current period and are therefore
the key audit matters. We describe these matters in our auditor’s
report unless law or regulation precludes public disclosure about
the matter or when, in extremely rare circumstances, we determine
that a matter should not be communicated in our report because the
adverse consequences of doing so would reasonably be expected to
outweigh the public interest benefits of such
communication.
Use of this report
This
report, including the opinions, has been prepared for and only for
the members as a body in accordance with Section 262 of The
Companies (Guernsey) Law, 2008 and
for no other purpose. We do not, in giving these opinions, accept
or assume responsibility for any other purpose or to any other
person to whom this report is shown or into whose hands it may come
save where expressly agreed by our prior consent in
writing.
Report on
other legal and regulatory requirements
Company Law exception reporting
Under
The Companies (Guernsey) Law, 2008
we are required to report to you if, in our opinion:
·
we
have not received all the information and explanations we require
for our audit;
·
proper accounting
records have not been kept; or
·
the
financial statements are not in agreement with the accounting
records.
We
have no exceptions to report arising from this
responsibility.
Corporate governance statement
The
Listing Rules require us to review the directors’ statements in
relation to going concern, longer-term
viability and that part of the corporate governance statement
relating to the company’s compliance with the provisions of the UK
Corporate Governance Code specified for our review. Our additional
responsibilities with respect to the corporate governance statement
as other information are described in the Reporting on other
information section of this report.
The
company has reported compliance against the 2019 AIC Code of
Corporate Governance (the “Code”) which has been endorsed by the UK
Financial Reporting Council as being consistent with the UK
Corporate Governance Code for the purposes of meeting the company’s
obligations, as an investment company, under the Listing Rules of
the FCA.
Based
on the work undertaken as part of our audit, we have concluded that
each of the following elements of the corporate governance
statement ,included within the Strategic Report and Directors’
Report is materially consistent with the financial statements and
our knowledge obtained during the audit, and we have nothing
material to add or draw attention to in relation to:
·
The
directors’ confirmation that they have carried out a robust
assessment of the emerging and principal risks;
·
The
disclosures in the Annual Report that describe those principal
risks, what procedures are in place to identify emerging risks and
an explanation of how these are being managed or
mitigated;
·
The
directors’ statement in the financial statements about whether they
considered it appropriate to adopt the going concern basis of
accounting in preparing them, and their identification of any
material uncertainties to the company’s ability to continue to do
so over a period of at least twelve months from the date of
approval of the financial statements;
·
The
directors’ explanation as to their assessment of the company’s
prospects, the period this assessment covers and why the period is
appropriate; and
·
The
directors’ statement as to whether they have a reasonable
expectation that the company will be able to continue in operation
and meet its liabilities as they fall due over the period of its
assessment, including any related disclosures drawing attention to
any necessary qualifications or assumptions.
Our
review of the directors’ statement regarding the longer-term
viability of the company was substantially less in scope than an
audit and only consisted of making inquiries and considering the
directors’ process supporting their statements; checking that the
statements are in alignment with the relevant provisions of the
Code; and considering whether the statement is consistent with the
financial statements and our knowledge and understanding of the
company and its environment obtained in the course of the
audit.
In
addition, based on the work undertaken as part of our audit, we
have concluded that each of the following elements of the corporate
governance statement is materially consistent with the financial
statements and our knowledge obtained during the audit:
·
The
directors’ statement that they consider the Annual Report, taken as
a whole, is fair, balanced and understandable, and provides the
information necessary for the members to assess the company's
position, performance, business model and strategy;
·
The
section of the Annual Report that describes the review of
effectiveness of risk management and internal control systems;
and
·
The
section of the Annual Report describing the work of the Audit
Committee.
We
have nothing to report in respect of our responsibility to report
when the directors’ statement relating to the company’s compliance
with the Code does not properly disclose a departure from a
relevant provision of the Code specified under the Listing Rules
for review by the auditors.
Adrian
Peacegood
For
and on behalf of PricewaterhouseCoopers CI LLP
Chartered
Accountants and Recognised Auditor
Guernsey, Channel
Islands
15 December 2023
STATEMENT
OF COMPREHENSIVE INCOME
For
the year ended 30 September
2023
|
|
|
|
|
Year
ended 30.09.23
|
|
Year
ended 30.09.22
|
|
|
|
|
|
Notes
|
|
£
|
|
£
|
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
on financial assets at fair value through profit and
loss
|
|
|
|
|
|
|
17,719,752
|
|
13,375,971
|
Net
foreign currency gains/(losses)
|
|
|
|
|
8
|
|
4,130,260
|
|
(5,453,122)
|
Net
gains/(losses) on financial assets at fair value through profit or
loss
|
|
|
|
|
9
|
|
7,278,794
|
|
(43,018,772)
|
Net
gains on interest rate swaps
|
|
|
|
|
|
|
-
|
|
1,720,253
|
|
|
|
|
|
|
|
|
|
|
Total
income/(loss)
|
|
|
|
|
|
|
29,128,806
|
|
(33,375,670)
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Portfolio
management fees
|
|
|
|
|
14
|
|
(1,306,509)
|
|
(1,290,172)
|
Directors'
fees
|
|
|
|
|
14
|
|
(146,076)
|
|
(128,190)
|
Administration
fees
|
|
|
|
|
15
|
|
(122,003)
|
|
(121,010)
|
AIFM
management fees
|
|
|
|
|
15
|
|
(82,178)
|
|
(81,607)
|
Audit
fees
|
|
|
|
|
|
|
(109,250)
|
|
(96,500)
|
Custody
fees
|
|
|
|
|
15
|
|
(20,281)
|
|
(17,457)
|
Broker
fees
|
|
|
|
|
|
|
(50,446)
|
|
(50,000)
|
Depositary
fees
|
|
|
|
|
15
|
|
(28,623)
|
|
(28,303)
|
Legal
and other professional fees
|
|
|
|
|
|
|
(50,634)
|
|
(25,415)
|
Other
expenses
|
|
|
|
|
|
|
(271,168)
|
|
(235,706)
|
|
|
|
|
|
|
|
|
|
|
Total
expenses
|
|
|
|
|
|
|
(2,187,168)
|
|
(2,074,360)
|
|
|
|
|
|
|
|
|
|
|
Total
comprehensive income/(loss) for the year*
|
|
|
|
|
|
|
26,941,638
|
|
(35,450,030)
|
|
|
|
|
|
|
|
|
|
|
Earnings/(loss)
per Ordinary Share - Basic & Diluted
|
|
|
|
|
4
|
|
0.114
|
|
(0.174)
|
All
items in the above statement derive from continuing
operations.
The
accompanying notes are an integral part of these Financial
Statements.
*There was no
other comprehensive income during the year.
STATEMENT
OF FINANCIAL POSITION
As at
30 September 2023
|
|
|
30.09.23
|
|
30.09.22
|
Assets
|
Notes
|
|
£
|
|
£
|
Current
assets
|
|
|
|
|
|
Financial assets
at fair value through profit and loss
|
|
|
|
|
|
-
Investments
|
9
|
|
176,435,682
|
|
148,915,038
|
-
Derivative assets: Forward currency contracts
|
16
|
|
373
|
|
778
|
Amounts due from
broker
|
|
|
591,537
|
|
855,647
|
Other
receivables
|
10
|
|
3,770,602
|
|
3,084,550
|
Cash
and cash equivalents
|
|
|
5,302,091
|
|
674,776
|
|
|
|
|
|
|
Total
current assets
|
|
|
186,100,285
|
|
153,530,789
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
Amounts due to
broker
|
|
|
937,392
|
|
-
|
Other
payables
|
11
|
|
1,662,752
|
|
444,657
|
Financial
liabilities at fair value through profit and loss
|
|
|
|
|
|
-
Derivative liabilities: Forward currency contracts
|
16
|
|
1,811,101
|
|
1,751,254
|
Total
current liabilities
|
|
|
4,411,245
|
|
2,195,911
|
|
|
|
|
|
|
Total net
assets
|
|
|
181,689,040
|
|
151,334,878
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
|
|
|
Share
capital account
|
12
|
|
219,836,492
|
|
201,561,499
|
Retained
earnings
|
|
|
(38,147,452)
|
|
(50,226,621)
|
|
|
|
|
|
|
Total
equity
|
|
|
181,689,040
|
|
151,334,878
|
|
|
|
|
|
|
|
|
|
|
|
|
Ordinary Shares
in issue
|
12
|
|
240,824,331
|
|
216,213,518
|
|
|
|
|
|
|
Net
Asset Value per Ordinary Share (pence)
|
6
|
|
75.44
|
|
69.99
|
The
Financial Statements were approved by the Board of Directors on
14 December 2023 and signed on its
behalf by:
Ashley Paxton Sharon
Parr
Chairman Director
The
accompanying notes are an integral part of these Financial
Statements.
STATEMENT
OF CHANGES IN EQUITY
For
the year ended 30 September
2023
|
|
|
Share
capital
|
|
Retained
|
|
|
|
|
|
account
|
|
earnings
|
|
Total
|
|
|
Note
|
£
|
|
£
|
|
£
|
Balance
at 1 October 2022
|
|
201,561,499
|
|
(50,226,621)
|
|
151,334,878
|
Issue
of shares
|
|
21,160,665
|
|
-
|
|
21,160,665
|
Share
issue costs
|
|
(248,637)
|
|
-
|
|
(248,637)
|
Repurchased
tendered shares in treasury
|
|
(2,497,538)
|
|
-
|
|
(2,497,538)
|
Income
equalisation on new issues
|
5
|
(139,497)
|
|
139,497
|
|
-
|
Dividends
paid
|
|
-
|
|
(15,001,966)
|
|
(15,001,966)
|
Total
comprehensive income for the year
|
|
-
|
|
26,941,638
|
|
26,941,638
|
|
|
|
|
|
|
|
|
Balance
at 30 September 2023
|
|
219,836,492
|
|
(38,147,452)
|
|
181,689,040
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share
capital
|
|
Retained
|
|
|
|
|
|
account
|
|
earnings
|
|
Total
|
|
|
Note
|
£
|
|
£
|
|
£
|
Balance
at 1 October 2021
|
|
179,677,592
|
|
(1,674,367)
|
|
178,003,225
|
Issue
of shares
|
|
22,233,683
|
|
-
|
|
22,233,683
|
Share
issue costs
|
|
(261,324)
|
|
-
|
|
(261,324)
|
Income
equalisation on new issues
|
5
|
(88,452)
|
|
88,452
|
|
-
|
Dividends
paid
|
|
-
|
|
(13,190,676)
|
|
(13,190,676)
|
Total
comprehensive loss for the year
|
|
-
|
|
(35,450,030)
|
|
(35,450,030)
|
|
|
|
|
|
|
|
|
Balance
at 30 September 2022
|
|
201,561,499
|
|
(50,226,621)
|
|
151,334,878
|
The
accompanying notes are an integral part of these Financial
Statements.
STATEMENT
OF CASH
FLOWS
For
the year ended 30 September
2023
|
|
Year
ended 30.09.23
|
|
Year
ended 30.09.22
|
|
Notes
|
£
|
|
£
|
Cash
flows from operating activities
|
|
|
|
|
Total
comprehensive income/(loss) for the year
|
|
26,941,638
|
|
(35,450,030)
|
Adjustments
for:
|
|
|
|
|
Net
(gains)/losses on financial assets at fair value through profit or
loss
|
9
|
(7,278,794)
|
|
43,018,772
|
Net
(gains) on interest rate swaps
|
|
-
|
|
(1,720,253)
|
Amortisation
adjustment under effective interest rate method
|
9
|
(2,243,398)
|
|
(1,607,825)
|
Unrealised losses
on forward currency contracts
|
8
|
60,252
|
|
869,828
|
Exchange
loss/(gain) on cash and cash equivalents
|
|
3,335
|
|
(5,253)
|
Increase in other
receivables
|
10
|
(686,052)
|
|
(512,134)
|
Increase/(decrease)
in other payables
|
11
|
13,973
|
|
(6,965)
|
Purchase of
investments
|
|
(51,463,187)
|
|
(74,507,758)
|
Sale
of investments
|
|
34,666,237
|
|
56,703,262
|
Sales
of interest rate swaps
|
|
-
|
|
1,720,253
|
|
|
|
|
|
Net
cash generated from/(used in) operating activities
|
|
14,004
|
|
(11,498,103)
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities
|
|
|
|
|
Proceeds from
issue of ordinary shares
|
12
|
21,160,665
|
|
22,720,033
|
Payment for
purchase of own shares to treasury
|
12
|
(2,497,538)
|
|
-
|
Share
issue costs
|
12
|
(248,637)
|
|
(261,324)
|
Dividends
paid
|
|
(13,797,844)
|
|
(13,190,676)
|
|
|
|
|
|
Net
cash generated from financing activities
|
|
4,616,646
|
|
9,268,033
|
|
|
|
|
|
|
|
|
|
|
Increase/(decrease)
in cash and cash equivalents
|
|
4,630,650
|
|
(2,230,070)
|
|
|
|
|
|
Cash
and cash equivalents at beginning of year
|
|
674,776
|
|
2,899,593
|
Exchange
(loss)/gain on cash and cash equivalents
|
|
(3,335)
|
|
5,253
|
|
|
|
|
|
Cash and
cash equivalents at end of year
|
|
5,302,091
|
|
674,776
|
The
accompanying notes are an integral part of these Financial
Statements.
NOTES TO
THE FINANCIAL STATEMENTS
For
the year ended 30 September
2023
1. General
information
TwentyFour Select
Monthly Income Fund Limited (the “Company”) was incorporated with
limited liability in Guernsey, as
a closed-ended investment company on 12
February 2014. The Company’s Shares were listed with a
Premium Listing on the Official List of the UK Listing Authority
and admitted to trading on the Main Market of the London Stock
Exchange (“LSE”) on 10 March
2014.
The
investment objective and policy is set out in the Summary
Information.
The
Portfolio Manager of the Company is TwentyFour Asset Management LLP
(the “Portfolio Manager”).
2. Principal
accounting policies
a) Basis
of preparation and statement of compliance
The Financial
Statements have been prepared in accordance with International
Financial Reporting Standards (“IFRS”) as issued by the
International Accounting Standards Board (“IASB”) and are in
compliance with The Companies (Guernsey) Law, 2008.
b)
Presentation of information
The
Financial Statements have been prepared on a going concern basis
under the historical cost convention adjusted to take account of
the revaluation of the Company’s financial assets and liabilities
at fair value through profit or loss. Additional commentary on
going concern is in the Directors’ Report.
c)
Standards, amendments and interpretations effective during the
year
The
following standards, interpretations and amendments were adopted
for the year ended 30 September
2023:
IFRS 9
Financial Instruments (Annual Improvements to IFRS Standards
2018-2020) (Effective 1 January
2022)
The
amendment clarifies the fees a company includes when assessing
whether the terms of a new or modified financial liability are
substantially different from the terms of the original financial
liability. The adoption of this standard has not had a material
impact on the financial statements of the Company.
Amendments
to IAS 37 Provisions, Contingent Liabilities and Contingent Assets
(Effective 1 January
2022)
The
amendment specifies which costs a company includes when assessing
whether a contract will be loss-making. The adoption of this
standard has not had a material impact on the financial statements
of the Company.
There
are no other standards, amendments and interpretations effective
during the year that are deemed material to the Company.
d)
Standards, amendments and interpretations issued but not yet
effective
At
the reporting date of these Financial Statements, the following
standards, interpretations and amendments, which have not been
applied in these Financial Statements, were in issue but not yet
effective:
IFRS 17
Insurance Contracts (Effective 1 January
2023)
The
Company expects that the adoption of IFRS 17 in the future period
will not have an impact on the Company’s financial statements, as
it does not hold or issue any insurance contracts.
Definition
of Accounting Estimates (Amendments to IAS 8) (Effective
1 January 2023)
The
definition of a change in accounting estimates is replaced with a
definition of accounting estimates. Under the new definition,
accounting estimates are “monetary amounts in financial statements
that are subject to measurement uncertainty”. A change in
accounting estimate that results from new information or new
developments is not the correction of an error. In addition, the
effects of a change in an input or a measurement technique used to
develop an accounting estimate are changes in accounting estimates
if they do not result from the correction of prior period errors. A
change in an accounting estimate may affect only the current
period’s profit or loss, or the profit or loss of both the current
period and future periods. The effect of the change relating to the
current period is recognised as income or expense in the current
period. The effect, if any, on future periods is recognised as
income or expense in those future periods.
Disclosure
of Accounting Policies (Amendments to IAS 1 and IFRS Practice
Statement 2) (Effective 1 January
2023)
An
entity is now required to disclose its material accounting policy
information instead of its significant accounting policies.
Explanation has been added regarding how an entity can identify
material accounting policy information and to give examples of when
accounting policy information is likely to be material. Accounting
policy information may be material because of its nature, even if
the related amounts are immaterial. Accounting policy information
is material if users of an entity’s financial statements would need
it to understand other material information in the financial
statements. If an entity discloses immaterial accounting policy
information, such information shall not obscure material accounting
policy information.
Classification
of Liabilities as Current or Non-Current (Amendments to IAS 1)
(Effective 1 January
2024)
The
amendments aim to promote consistency in applying the requirements
by helping companies determine whether, in the statement of
financial position, debt and other liabilities with an uncertain
settlement date should be classified as current (due or potentially
due to be settled within one year) or non-current. The amendments
include clarifying the classification requirements for debt a
company might settle by converting it into equity.
The
Board anticipates that the adoption of these standards, which will
be adopted in the period which they become effective, will not have
a material impact on the Company’s financial statements.
e)
Financial assets and financial liabilities at fair value through
profit or loss
Classification
The
Company classifies its investments in debt securities and
derivatives as financial assets and liabilities at fair value
through profit or loss.
Financial assets
and financial liabilities designated at fair value through profit
or loss at inception are managed and their performance is evaluated
on a fair value basis in accordance with the Company’s investment
objective, which is to generate attractive risk adjusted returns,
principally through income distributions, by investing in a
diversified portfolio of credit securities per IFRS 9.
The
Company’s policy requires the Portfolio Manager and the Board of
Directors to evaluate the information about these financial assets
and liabilities on a fair value basis together with other related
financial information.
Recognition,
derecognition and measurement
Regular purchases
and sales of investments (securities and derivatives) are
recognised on the trade date, that is, the date on which the
Company commits to purchase or sell the investment. Financial
assets and financial liabilities at fair value through profit or
loss are initially recognised at fair value. Transaction costs are
expensed as incurred in the Statement of Comprehensive Income.
Financial assets are derecognised when the rights to receive cash
flows from the investments have expired or the Company has
transferred substantially all risks and rewards of ownership.
Financial liabilities are derecognised when they are extinguished,
discharged, cancelled or expired.
The
Company may invest in any category of credit security, including,
without prejudice to the generality of the foregoing, bank capital,
corporate bonds, high yield bonds, leveraged loans, payment-in-kind
notes and asset-backed securities. The Company records any
principal repayments as they arise and realises a gain or loss in
the net gains on financial assets at fair value through profit or
loss in the Statement of Comprehensive Income in the period in
which they occur.
The
interest income arising on these credit securities is recognised on
a time-proportionate basis using the effective interest rate method
and shown within income in the Statement of Comprehensive
Income.
Fair value
estimation
Fair
value is the price that would be received to sell an asset or paid
to transfer a liability in an orderly transaction between market
participants at the measurement date. The fair value of financial
assets and liabilities traded in active markets (such as publicly
traded derivatives and trading securities) are based on quoted
market prices at the close of trading on the reporting
date.
i)
Credit securities
traded or dealt on an active market or exchange
Credit securities
that are traded or dealt on an active market or exchange are valued
by reference to their quoted mid-market price as at the close of
trading on the reporting date as the Portfolio Manager deems the
mid-market price to be a reasonable approximation of an exit
price.
ii)
Credit securities
not traded or dealt on an active market or exchange
Credit securities
which are not traded or dealt on active markets or exchanges are
valued by reference to their mid-price, as at the close of business
on the reporting date as determined by pricing Service Providers
that use broker dealer quotations, reported trades or valuation
estimates from their internal pricing models. If a price cannot be
obtained from an independent price vendor, or where the Portfolio
Manager determines that the provided price is not an accurate
representation of the fair value of the Credit security, the
Portfolio Manager will source mid-price quotes at the close of
business on the reporting date from independent third party
brokers/dealers for the relevant security. If no mid-price is
available then a bid-price will be used.
In
cases where no third party price is available (either from an
independent price vendor or independent third party
brokers/dealers), or where the Portfolio Manager determines that
the provided price is not an accurate representation of the fair
value of the Credit security, the Portfolio Manager may use a third
party valuation in line with the fair value policy of the Company.
This may include the use of a comparable arm’s length transaction,
independent third party valuation experts, reference to other
securities that are substantially the same, discounted cash flow
analysis and other valuation techniques commonly used by market
participants making the maximum use of market inputs and relying as
little as possible on entity-specific inputs.
Forward
foreign currency contracts
Forward foreign
currency contracts are derivative contracts and as such are
recognised at fair value on the date on which they are entered into
and subsequently measured at their fair value. Fair value is
determined from underlying asset prices indices, reference rates
and other observable inputs. These instruments are normally valued
by pricing Service Providers or by utilising broker or dealer
quotations. All forward foreign currency contracts are carried as
assets when fair value is positive and as liabilities when fair
value is negative. Gains and losses on forward currency contracts
are recognised as part of net foreign currency gains in the
Statement of Comprehensive Income.
Expected
credit loss
Financial assets
that are stated at cost or amortised cost are reviewed at each
reporting date in line with the expected credit loss policy. An
expected credit loss is recognised in the Statement of
Comprehensive Income as the difference
between the carrying value and the estimated recoverable value of
the financial
assets.
The
expected credit loss (“ECL”) model applies to financial assets
measured at amortised cost and the standard mandates the use of the
simplified approach to calculating the expected credit losses for
amounts due from broker and other receivables. The ECL calculation
is based on the Company’s historical default rates over the
expected life of the trade receivables. Given the historical level
of defaults on trade receivables, there is a negligible impact
because of the lifetime expected credit loss to be
recognised.
Cash
and cash equivalents are also subject to the ECL requirements of
IFRS 9 and the ECL is assessed as immaterial.
Swap
contracts are derivative contracts and as such are recognised at
fair value on the date on which they are entered into and
subsequently measured at their fair value. All swap contracts are
carried as assets when fair value is positive and as liabilities
when fair value is negative. Gains and losses on swap contracts are
recognised as part of net gains on derivative assets - swap
contracts in the Statement of Comprehensive Income.
f)
Offsetting financial instruments
Financial assets
and liabilities are offset and the net amount reported in the
Statement of Financial Position when there is a legally enforceable
right to offset the recognised amounts and there is an intention to
settle on a net basis or realise the asset and settle the liability
simultaneously. Derivatives are not settled on a net basis and
therefore derivative assets and liabilities are shown
gross.
g)
Amounts due from and due to brokers
Amounts due from
and to brokers represent receivables for securities sold and
payables for securities purchased that have been contracted for but
not yet settled or delivered on the Statement of Financial Position
date, respectively. These amounts are recognised initially at fair
value and subsequently measured at amortised cost using the
effective interest rate method.
h)
Interest income
Interest income
is recognised on a time-proportionate basis using the effective
interest rate method. Discounts received or premiums paid in
connection with the acquisition of credit securities are amortised
into interest income using the effective interest rate method over
the expected life of the related security.
The
effective interest rate method is a method of calculating the
amortised cost of a financial asset or financial liability and of
allocating the interest income or interest expense over the
relevant period. The effective interest rate is the rate that
exactly discounts estimated future cash payments or receipts
throughout the expected life of the financial instrument, or, when
appropriate, a shorter period, to the net carrying amount of the
financial asset or financial liability.
When
calculating the effective interest rate, the Portfolio Manager
estimates cash flows considering the expected life of the financial
instrument, including future credit losses and deferred interest
payments. The calculation includes all fees and amounts paid or
received between parties to the contract that are an integral part
of the effective interest rate and all other premiums or
discounts.
i) Cash
and cash equivalents
Cash
and cash equivalents comprise deposits held at call with banks and
other short-term investments in an active market with original
maturities of three months or less and for purposes of cash and
cash equivalents, less bank overdrafts. Bank overdrafts are
included in current liabilities in the Statement of Financial
Position.
j) Share
capital
Ordinary Shares
are classified as equity. Incremental costs directly attributable
to the issue of Ordinary Shares are shown in equity as a deduction,
net of tax, from the proceeds and disclosed in the Statement of
Changes in Equity.
Repurchased
tendered shares are treated as a distribution of capital and
deducted from the Share Capital account. These shares are held in
Treasury.
k)
Retained earnings
Retained earnings
consist of equalisation on issues of new shares, dividends paid and
total comprehensive income for the year.
l)
Foreign currency translation
Functional
and presentation currency
Items
included in the Financial Statements are measured using sterling,
the currency of the primary economic environment in which the
Company operates (the “functional currency”). The Financial
Statements are presented in sterling, which is the Company’s
presentation currency.
Transactions
and balances
Foreign currency
transactions are translated into the functional currency using the
exchange rates prevailing at the dates of the transactions. Foreign
currency assets and liabilities are translated into the functional
currency using the exchange rate prevailing at the Statement of
Financial Position date.
All
foreign exchange gains and losses are presented in the Statement of
Comprehensive Income. Foreign exchange gains and losses relating to
forward currency contracts, receivables and payables are presented
in the statement of comprehensive income within ‘net foreign
currency gains/(losses)’.
Foreign exchange
gains and losses relating to investments are presented in the
Statement of Comprehensive Income within ‘Net gains/(losses) on
financial assets at fair value through profit or loss’.
m)
Transaction costs
Transaction costs
on financial assets and liabilities at fair value through profit or
loss include fees and commissions paid to agents, advisers, brokers
and dealers. Transaction costs, when incurred, are immediately
recognised in the Statement of Comprehensive Income.
n)
Segment reporting
Operating
segments are reported in a manner consistent with the internal
reporting provided to the chief operating decision-maker. The chief
operating decision-maker, who is responsible for allocating
resources and assessing performance of the operating segments, has
been identified as the Board. The Directors are of the opinion that
the Company is engaged in a single segment of business, being
investments in credit securities. The Directors manage the business
in this way. For additional information refer to note
18.
o)
Expenses
All
expenses are included in the Statement of Comprehensive Income on
an accruals basis and are recognised through profit or loss in the
Statement of Comprehensive Income.
p) Other
receivables
Other
receivables are amounts due in the ordinary course of business. If
collection is expected in one year or less, they are classified as
current assets. If not, they are presented as non-current assets.
Other receivables are recognised initially at fair value and
subsequently measured at amortised cost using the effective
interest rate method, less expected credit losses.
q) Other
payables
Other
payables are obligations to pay for services that have been
acquired in the ordinary course of business. Other payables are
classified as current liabilities if payment is due within one year
or less. If not, they are presented as non-current liabilities.
Other payables are recognised initially at fair value and
subsequently measured at amortised cost using the effective
interest rate method.
r)
Dividends paid
Dividend
distributions due to the Company’s Shareholders are recognised as
liabilities in the Company’s financial statements and disclosed in
the Statement of Changes in Equity in the period in which the
dividends are approved by the Board.
s) Income
equalisation on new issues/tendered shares
repurchased
In
order to ensure there are no dilutive effects on earnings per share
for current Shareholders when issuing new shares, or when
repurchasing tendered shares, a transfer is made between share
capital and other reserves to reflect that amount of income
included in the purchase price of the new shares or the repurchase
price of the tendered shares.
t)
Treasury shares
The
Company has the right to issue and purchase up to 14.99% of the
total number of its own shares, as disclosed in note 12.
Shares held in
Treasury are excluded from calculations when determining
earnings/(loss) per Ordinary Share or Net Asset Value per Ordinary
Share as detailed in notes 4 and 6.
3. Significant
accounting judgements, estimates and
assumptions
The preparation
of the Company’s financial statements requires management to make
judgements, estimates and assumptions that affect the reported
amounts of revenues, expenses, assets and liabilities and the
accompanying disclosures. Uncertainty about these assumptions and
estimates could result in outcomes that require a material
adjustment to the carrying amount of assets or liabilities affected
in future periods.
(i)
Judgements
In
the process of applying the Company’s accounting policies,
management has made the following judgements, which have the most
significant effect on the amounts recognised in the Financial
Statements:
Functional
currency
As
disclosed in note 2(l), the Company’s functional currency is
sterling.
Sterling is the
currency in which the Company measures its performance and reports
its results. Where investments are dominated in other currencies,
the Portfolio Manager enters into hedging arrangements to translate
the value of those investments into sterling using spot and forward
foreign exchange contracts. Additionally, investors buy shares in
and receive dividends from the Company in sterling. Expenses
incurred by the Company are also in sterling.
Consequently, the
Directors believe that sterling best represents the functional
currency of the Company.
(ii)
Estimates and assumptions
The
key assumptions concerning the future and other key sources of
estimation uncertainty at the reporting date, that have a
significant risk of causing a material adjustment to the carrying
amounts of assets and liabilities within the next financial year,
are described below. The Company based its assumptions and
estimates on parameters available when the Financial Statements
were prepared. Existing circumstances and assumptions about future
developments, however, may change due to market changes or
circumstances arising which are beyond the control of the Company.
Such changes are reflected in the assumptions when they
occur.
a) Fair value
of securities not quoted in active markets
The
Company carries its investments in credit securities at fair value,
with changes in value being recognised in the Statement of
Comprehensive Income. In cases where prices of credit securities
are not quoted in an active market, the Portfolio Manager will
obtain prices determined at the close of business on the reporting
date from an independent price vendor. The Portfolio Manager
exercises its judgement on the quality of the independent price
vendor and information provided. If a price cannot be obtained from
an independent price vendor or where the Portfolio Manager
determines that the provided price is not an accurate
representation of the fair value of the credit security, the
Portfolio Manager will source prices from independent third party
brokers or dealers for the relevant security, which may be
indicative rather than tradable. Where no third party price is
available, or where the Portfolio Manager determines that the third
party quote is not an accurate representation of the fair value,
the Portfolio Manager will determine the valuation based on the
Portfolio Manager's valuation policy. This may include the use of a
comparable arm's length transaction, independent valuation experts,
reference to other securities that are substantially the same,
discounted cash flow analysis and other valuation techniques
commonly used by market participants making the maximum use of
market inputs and relying as little as possible on entity-specific
inputs.
No
credit securities were priced by the Portfolio Manager during the
year or any previous year. There has been no change to the
accounting policy applied to how these investments have been valued
(see notes 2 and 3) but the use of an independent third party
valuation expert was used to value approximately 3.2% of the
Company’s investments at 30 September
2023 (30 September 2022:
2.7%). See note 16 for price sensitivity analysis and details of
interest rate risk.
b) Estimated
life of credit securities
In
determining the estimated life of the credit securities held by the
Company, the Portfolio Manager estimates the remaining life of the
security with respect to expected prepayment rates, default rates
and loss rates together with other information available in the
market underlying the security. The estimated life of the credit
securities, as determined by the Portfolio Manager, impacts the
effective interest rate of the credit securities which in turn
impacts the calculation of income as discussed in note
2(h).
c)
Determination of observable inputs
As
discussed in note 17, when determining the levels of investments
within the fair value hierarchy, the determination of what
constitutes ‘observable’ requires significant judgement by the
Company. The Company considers observable data to be market data
that is readily available, regularly distributed or updated,
reliable and verifiable, not proprietary, and provided by
independent sources that are actively involved in the relevant
market.
d) Revenue
recognition
Interest income
is recognised on a time-proportionate basis using the effective
interest rate method. Discounts received or premiums paid in
connection with the acquisition of credit securities are amortised
into interest income using the effective interest rate method over
the expected life of the related security.
When
calculating the effective interest rate, the Portfolio Manager
estimates cash flows considering the expected life of the financial
instrument, including future credit losses and deferred interest
payments. The calculation includes all fees and amounts paid or
received between parties to the contract that are an integral part
of the effective interest rate and all other premiums or
discounts.
Revenue
estimations are sensitive to changes in interest income resulting
from financial instruments defaulting. Interest income represents
management’s best estimate having regard to historical volatility
and looking forward at the global environment.
4. Earnings/(loss)
per Ordinary Share – basic & diluted
The
earnings per Ordinary Share basic and diluted of 11.4p
(30 September 2022: loss of 17.4p)
has been calculated based on the weighted average number of
Ordinary Shares of 235,949,235 (30 September
2022: 203,323,245) and a net income for the year of
£26,941,638 (30 September 2022: net
loss of £35,450,030). As at 30 September
2023, the Company has 3,949,187 Ordinary Shares in Treasury.
As these will only be issued at a premium, there will be no diluted
impact on earnings per share.
5.
Income
on equalisation of new issues/tendered shares
repurchased
In order to
ensure there were no dilutive effects on earnings per share for
current Shareholders when issuing new shares, or when repurchasing
tendered shares, earnings have been calculated in respect of the
accrued income at the time of purchase of new shares/repurchase of
tendered shares and a transfer has been made from share capital to
income to reflect this. The transfer for the year amounted to
£139,497 (30 September 2022:
£88,452).
6. Net
asset value per Ordinary Share
The
net asset value of each Share of 75.44p (30
September 2022: 69.99p) is determined by dividing the total
net assets of the Company of £181,689,040 (30 September 2022: £151,334,878) by the number of
Shares in issue at 30 September 2023
of 240,824,331 (30 September 2022:
216,213,518).
7.
Taxation
The Company has
been granted Exempt Status under the terms of The Income Tax
(Exempt Bodies) (Guernsey)
Ordinance, 1989 to income tax in Guernsey. Its liability for Guernsey taxation is limited to an annual fee
of £1,200 (30 September 2022:
£1,200). The activities of the Company do not constitute relevant
activities as defined by the Income Tax (Substance Requirements)
(Implementation) Regulations, 2018 (as amended) and as such the
Company was out of scope.
8.
Net
foreign currency gains/(losses)
|
|
|
|
|
|
|
Year
ended
30.09.23
|
|
Year
ended
30.09.22
|
|
|
|
|
|
|
|
£
|
|
£
|
Movement in net
unrealised losses on forward currency contracts
|
(60,252)
|
|
(869,828)
|
Realised
gains/(losses) on forward currency contracts
|
5,988,979
|
|
(6,463,419)
|
Realised currency
(losses)/gains on receivables/payables
|
(1,767,408)
|
|
1,833,144
|
Unrealised
currency (losses)/gains on receivables/payables
|
(31,059)
|
|
46,981
|
|
|
|
|
|
|
|
|
|
|
|
4,130,260
|
|
(5,453,122)
|
9.
Investments
|
|
|
|
|
|
|
As
at
30.09.23
|
|
|
As
at
30.09.22
|
|
|
|
|
|
|
|
£
|
|
|
£
|
Financial
assets at fair value through profit and loss:
|
|
|
|
|
Opening amortised
cost
|
|
|
|
|
181,626,982
|
|
|
166,830,696
|
Purchases at
cost
|
|
|
|
|
|
|
64,093,087
|
|
|
72,079,175
|
Proceeds on
sale/principal repayment
|
|
(46,094,635)
|
|
|
(57,405,301)
|
Amortisation
adjustment under effective interest rate method
|
2,243,398
|
|
|
1,607,825
|
Realised gain on
sale/principal repayment
|
|
1,764,090
|
|
|
8,112,896
|
Realised loss on
sale/principal repayment
|
|
(7,581,796)
|
|
|
(9,598,309)
|
|
|
|
|
|
|
|
|
|
|
|
Closing amortised
cost
|
|
|
|
|
196,051,126
|
|
|
181,626,982
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealised gain
on investments
|
|
1,278,651
|
|
|
695,135
|
Unrealised loss
on investments
|
|
(20,894,095)
|
|
|
(33,407,079)
|
Fair
value
|
|
|
|
|
|
|
176,435,682
|
|
|
148,915,038
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
ended
30.09.23
|
|
|
Year
ended
30.09.22
|
|
|
|
|
|
|
|
£
|
|
|
£
|
Realised gain on
sale/principal repayment
|
|
1,764,090
|
|
|
8,112,896
|
Realised loss on
sale/principal repayment
|
|
(7,581,796)
|
|
|
(9,598,309)
|
Increase/(decrease)
in unrealised gain
|
|
583,516
|
|
|
(11,980,997)
|
Decrease/(increase)
in unrealised loss
|
|
12,512,984
|
|
|
(29,552,362)
|
|
|
|
|
|
|
|
|
|
|
|
Net
gain/(loss) on financial assets at fair value through profit or
loss
|
7,278,794
|
|
|
(43,018,772)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.
Other
receivables
|
|
|
|
|
|
|
As
at
30.09.23
|
|
As
at
30.09.22
|
|
|
|
|
|
|
|
£
|
|
£
|
Interest income
receivable
|
|
|
|
3,616,445
|
|
2,972,574
|
Prepaid
expenses
|
|
|
|
|
|
|
37,180
|
|
11,628
|
Dividends
receivable
|
|
|
|
|
|
99,781
|
|
100,348
|
Other
receivable
|
|
|
|
|
|
|
17,196
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,770,602
|
|
3,084,550
|
There
are no material expected credit losses for interest income
receivable as at 30 September
2023.
11.
Other
payables
|
|
|
|
|
|
|
As
at
30.09.23
|
|
As
at
30.09.22
|
|
|
|
|
|
|
|
£
|
|
£
|
Portfolio
management fees payable
|
|
141,472
|
|
231,970
|
Directors' fees
payable
|
|
|
|
|
848
|
|
-
|
Administration
fees payable
|
|
|
62,010
|
|
59,267
|
AIFM
management fees payable
|
|
34,120
|
|
11,860
|
Audit
fees payable
|
|
|
|
|
|
|
109,250
|
|
74,195
|
Other
expenses payable
|
|
|
|
|
109,133
|
|
59,838
|
Custody fees
payable
|
|
|
|
|
1,797
|
|
1,112
|
Share
issue costs payable
|
|
|
|
|
-
|
|
6,415
|
Dividends
payable
|
|
|
|
|
|
|
1,204,122
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,662,752
|
|
444,657
|
12. Share
capital account
Authorised
share capital
The
Directors may issue an unlimited number of Ordinary Shares at par
value of 1p per share.
Issued
share capital
|
|
|
|
|
|
|
As
at
30.09.23
|
|
As
at
30.09.22
|
|
|
|
|
|
|
|
£
|
|
£
|
Ordinary
Shares
|
|
|
|
|
|
|
|
|
|
Share
capital account at the beginning of the year
|
|
|
201,561,499
|
|
179,677,592
|
Issue
of shares
|
|
|
|
|
|
|
21,160,665
|
|
22,233,683
|
Share
issue costs
|
|
|
|
|
|
|
(248,637)
|
|
(261,324)
|
Purchase of own
shares into treasury
|
|
|
|
|
|
|
(2,497,538)
|
|
-
|
Income
equalisation on new issues
|
|
(139,497)
|
|
(88,452)
|
|
|
|
|
|
|
|
|
|
|
Total
share capital account at the end of the year
|
|
|
219,836,492
|
|
201,561,499
|
Reconciliation
of number of Shares
|
|
|
|
|
|
|
30.09.23
|
|
30.09.22
|
|
|
|
|
|
|
|
Shares
|
|
Shares
|
Ordinary
Shares
|
|
|
|
|
|
|
|
|
|
Shares at the
beginning of the year
|
|
|
216,213,518
|
|
190,738,518
|
Issue
of shares
|
|
|
|
|
|
|
28,050,000
|
|
25,475,000
|
Purchase of own
shares into treasury
|
|
|
|
|
|
|
(3,439,187)
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Total
Shares in issue at the end of the year
|
|
|
240,824,331
|
|
216,213,518
|
The
Ordinary Shares carry the following rights:
a)
The
Ordinary Shares carry the right to receive all income of the
Company attributable to the Ordinary Shares.
b)
The
Shareholders present in person or by proxy or present by a duly
authorised representative at a general meeting has, on a show of
hands, one vote and, on a poll, one vote for each Share
held.
The Company has
the right to issue and purchase up to 14.99% of the total number of
its own shares at £0.01 each, to be classed as Treasury Shares and
may cancel those Shares or hold any such Shares as Treasury Shares,
provided that the number of Shares held as Treasury Shares shall
not at any time exceed 10% of the total number of Shares of that
class in issue at that time or such amount as provided in the
Companies Law.
The Company held
3,439,187 shares in Treasury as at 30
September 2023 (30 September
2022: Nil).
13. Analysis
of financial assets and liabilities by measurement basis as per
Statement of Financial Position
|
|
|
|
|
|
|
|
Financial
|
|
|
|
|
|
|
|
|
|
|
|
|
assets at
fair
value
through
|
Amortised
|
|
|
|
|
|
|
|
|
|
|
profit
and loss
|
|
cost
|
|
Total
|
|
|
|
|
|
|
|
|
£
|
|
£
|
|
£
|
30
September 2023
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
Assets
|
|
|
|
|
|
|
Financial assets
at fair value through profit and loss
|
|
|
|
|
|
|
-
Investments
|
|
|
|
|
|
|
|
|
|
|
|
-
Corporate bonds
|
|
|
|
|
|
|
114,210,465
|
|
-
|
|
114,210,465
|
-
Asset-backed securities
|
|
|
|
|
|
62,225,217
|
|
-
|
|
62,225,217
|
-
Derivative assets: Forward currency contracts
|
|
373
|
|
-
|
|
373
|
Amounts due from
broker
|
|
|
|
|
|
-
|
|
591,537
|
|
591,537
|
Other
receivables (excluding prepaid expenses)
|
|
-
|
|
3,733,422
|
|
3,733,422
|
Cash
and cash equivalents
|
|
|
|
|
|
-
|
|
5,302,091
|
|
5,302,091
|
|
|
|
|
|
|
|
|
176,436,055
|
|
9,627,050
|
|
186,063,105
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
|
|
|
|
|
|
|
|
|
|
|
|
|
liabilities
at fair
|
|
|
|
|
|
|
|
|
|
|
|
|
value
through
|
Amortised
|
|
|
|
|
|
|
|
|
|
|
profit
and loss
|
|
cost
|
|
Total
|
|
|
|
|
|
|
|
|
£
|
|
£
|
|
£
|
30
September 2023
|
|
|
|
|
|
|
|
|
|
|
|
Financial
Liabilities
|
|
|
|
|
|
|
Amounts due to
broker
|
|
|
|
|
|
|
-
|
|
937,392
|
|
937,392
|
Other
payables
|
|
|
|
|
|
|
-
|
|
1,662,752
|
|
1,662,752
|
Financial
liabilities at fair value through profit and loss
|
|
|
|
|
-
Derivative liabilities: Forward currency contracts
|
|
1,811,101
|
|
-
|
|
1,811,101
|
|
|
|
|
|
|
|
|
1,811,101
|
|
2,600,144
|
|
4,411,245
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
|
|
|
|
|
|
|
|
|
|
|
|
|
assets at
fair
|
|
|
|
|
|
|
|
|
|
|
|
|
value
through
|
|
Amortised
|
|
|
|
|
|
|
|
|
|
|
profit
and loss
|
|
cost
|
|
Total
|
|
|
|
|
|
|
|
|
£
|
|
£
|
|
£
|
30
September 2022
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
Assets
|
|
|
|
|
|
|
Financial assets
at fair value through profit and loss
|
|
|
|
|
|
|
-
Investments
|
|
|
|
|
|
|
|
|
|
|
|
-
Corporate bonds
|
|
|
|
|
|
|
95,890,726
|
|
-
|
|
95,890,726
|
-
Asset-backed securities
|
|
|
|
|
|
53,024,312
|
|
-
|
|
53,024,312
|
-
Derivative assets: Forward currency contracts
|
|
778
|
|
-
|
|
778
|
Amounts due from
broker
|
|
|
|
|
|
-
|
|
855,647
|
|
855,647
|
Other
receivables (excluding prepaid expenses)
|
|
-
|
|
3,072,922
|
|
3,072,922
|
Cash
and cash equivalents
|
|
|
|
|
|
-
|
|
674,776
|
|
674,776
|
|
|
|
|
|
|
|
|
148,915,816
|
|
4,603,345
|
|
153,519,161
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
|
|
|
|
|
|
|
|
|
|
|
|
|
liabilities
at fair
|
|
|
|
|
|
|
|
|
|
|
|
|
value
through
|
|
Amortised
|
|
|
|
|
|
|
|
|
|
|
profit
and loss
|
|
cost
|
|
Total
|
|
|
|
|
|
|
|
|
£
|
|
£
|
|
£
|
30
September 2022
|
|
|
|
|
|
|
|
|
|
|
|
Financial
Liabilities
|
|
|
|
|
|
|
Other
payables
|
|
|
|
|
|
|
-
|
|
444,657
|
|
444,657
|
Financial
liabilities at fair value through profit and loss
|
|
|
|
|
-
Derivative liabilities: Forward currency contracts
|
|
1,751,254
|
|
-
|
|
1,751,254
|
|
|
|
|
|
|
|
|
1,751,254
|
|
444,657
|
|
2,195,911
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14. Related
parties
a)
Directors’ remuneration
The
Directors of the Company are remunerated for their services at such
a rate as the Directors determine. The aggregate fees of the
Directors will not exceed £250,000.
The
Directors’ fees for the year and the outstanding fees at year end
are as follows:
|
|
|
|
|
|
30.09.23
|
30.09.22
|
|
|
|
|
|
|
£
|
£
|
Ashley Paxton
(Chair of the Board)¹
|
|
|
|
39,348
|
34,295
|
Sharon Parr
(Audit and Risk Committee Chair)²
|
|
|
32,660
|
-
|
Wendy
Dorey (MEC Chair)³
|
|
|
|
23,613
|
-
|
Claire Whittet
(resigned 11 August 2023)
|
|
|
38,063
|
44,000
|
Ian
Martin (resigned 1 February 2023)
|
|
|
12,392
|
37,000
|
Christopher Legge
(resigned 31 January 2022)
|
|
|
-
|
12,895
|
Total
|
|
|
|
|
|
146,076
|
128,190
|
1 Ashley Paxton was appointed Chair of the Board
on 11 August 2023.
2 Sharon Parr was appointed a Director on
1 November 2022 and as Chair of the
Audit and Risk Committee and the Remuneration and Nomination
Committee on 11 August
2023.
3 Wendy Dorey was appointed a Director on
1 February 2023 and as Chair of the
Management Engagement Committee on 11 August
2023.
£848
of Directors’ fees were outstanding as at 30
September 2023 (30 September
2022: £Nil).
b) Shares
held by related parties
The
Directors of the Company held the following shares
beneficially:
|
|
|
|
|
|
30.09.23
|
30.09.22
|
|
|
|
|
|
|
Shares
|
Shares
|
Ashley
Paxton
|
|
|
|
|
100,000
|
22,500
|
Sharon
Parr1
|
|
|
98,004
|
-
|
Wendy
Dorey
2
|
|
|
15,000
|
-
|
Claire
Whittet3
|
|
|
25,000
|
25,000
|
Ian
Martin4
|
|
|
35,000
|
35,000
|
1 Sharon Parr was appointed on 1 November 2022.
2 Wendy Dorey was appointed on 1 February 2023.
3 Claire Whittet resigned on 11 August 2023.
4 Ian Martin resigned on 1
February 2023.
Directors are
entitled to receive the dividends on any shares held by them during
the year. Dividends declared by the Company are set out in note
19.
As at
30 September 2023, separate fund
entities for which the Portfolio Manager is engaged to provide
portfolio management services, collectively held 7,562,744 Shares
(30 September 2022: 7,562,744 Shares)
which is 3.14% (30 September 2022:
3.50%) of the Issued Share Capital. Partners and employees of the
Portfolio Manager, including their immediate family members,
directly or indirectly held 4,993,523 Shares (30 September 2022: 5,064,515), which is 2.07%
(30 September 2022: 2.34%) of the
Issued Share Capital.
The
Shares held by Directors and by partners and employees of the
Portfolio Manager are purchased in their own right on the open
market and do not form part of their remuneration paid by the
Company.
The
Portfolio Manager, partner and employee amounts therefore exclude
Shares held under any long-term incentive plan (“LTIP”) which has
not yet vested. Shares that are held in employee and partner LTIPs
total 536,141 (30 September 2022:
246,455), which is 0.22% of the Issued Share Capital (30 September 2022: 0.11%).
The
amounts for the Portfolio Manager, its partners and employees are
shown for transparency purposes and are not considered transactions
with related parties.
c)
Portfolio Manager
The portfolio management fee is
payable to the Portfolio Manager monthly in arrears at a rate of
0.75% per annum of the lower of NAV, which is calculated weekly on
each valuation day, or market capitalisation of each class of
shares. Total
portfolio management fees for the year amounted to £1,306,509
(30 September 2022: £1,290,172) of
which £141,472 (30 September 2022: £231,970) is payable at year
end. The
Portfolio Management Agreement dated 17
February 2014 remains in force until determined by the
Company or the Portfolio Manager giving the other party not less
than twelve months' notice in writing. Under certain circumstances,
the Company or the Portfolio Manager is entitled to immediately
terminate the agreement in writing.
The
Portfolio Manager is also entitled to a commission of 0.175% of the
aggregate gross offering proceeds in relation to any issue of new
Shares, following admission, in
consideration of marketing services that it provides to the
Company. During the year, the Portfolio Manager earned £37,031
(30 September 2022: £38,986) in
commission, which is charged as a cost of
issuance.
15. Material
agreements
a)
Alternative Investment Fund Manager (“AIFM”)
The
Company’s AIFM is Apex Fundrock Limited (previously called Maitland
Institutional Services Limited). In consideration for the services
provided by the AIFM under the AIFM Agreement, the AIFM is entitled
to receive from the Company a minimum fee of £20,000 per annum and
fees payable quarterly in arrears at a rate of 0.07% of the Net
Asset Value of the Company below £50 million, 0.05% on Net Assets
between £50 million and £100 million and 0.03% on Net Assets in
excess of £100 million. During the year, AIFM fees of £82,178
(30 September 2022: £81,607) were
charged to the Company, of which £34,120 (30
September 2022: £11,860) remained payable at the end of the
year.
b)
Administrator and Secretary
Administration
fees are payable to Northern Trust International Fund
Administration Services (Guernsey)
Limited monthly in arrears at a rate of 0.06% of the Net Asset
Value of the Company below £100 million, 0.05% on Net Assets
between £100 million and £200 million and 0.04% on Net Assets in
excess of £200 million as at the last business day of the month
subject to a minimum of £75,000 for each year. In addition, an
annual fee of £25,000 will be charged for corporate governance and
company secretarial services. During the year, administration and
secretarial fees of £122,003 (30 September
2022: £121,010) were charged to the Company, of which
£62,010 (30 September 2022: £59,267)
remained payable at the end of the year.
c)
Broker
For
its services as the Company’s broker, Deutsche Numis Limited (the
“Broker”) is entitled to receive a retainer fee of £50,000 per
annum and also a commission of 1% on all tap issues. During the
year, the Broker earned £211,607 (30
September 2022: £222,337) in commission, which is charged as
a cost of issuance.
d)
Depositary
Depositary’s
fees are payable to Northern Trust
(Guernsey) Limited monthly in
arrears at a rate of 0.0175% of the NAV of the Company below £100
million, 0.0150% on Net Assets between £100 million and £200
million and 0.0125% on Net Assets in excess of £200 million as at
the last business day of the month subject to a minimum of £25,000
for each year. During the year, depositary fees of £28,623
(30 September 2022: £28,303) were
charged to the Company, of which £Nil (30
September 2022: £Nil) remained payable at the end of the
year.
The
Depositary is also entitled to a Global Custody fee of a minimum of
£8,500 per annum plus transaction fees. Total Global Custody fees
and charges for the year amounted to £20,281 (30 September 2022: £17,457) of which £1,797
(30 September 2022: £1,112) is due
and payable at the end of the year.
16. Financial
risk management
The
Company’s activities expose it to a variety of financial risks:
market risk (including price risk, reinvestment risk, interest rate
risk and foreign currency risk), credit risk, liquidity risk and
capital risk.
The Company’s financial
instruments include financial assets/liabilities at fair value
through profit or loss, cash and cash equivalents, amounts due
to/from broker, other receivables and other payables. The
techniques and instruments utilised for the purposes of efficient
portfolio management are those which are reasonably believed by the
Board to be economically appropriate to the efficient management of
the Company.
Market
risk
Market risk
embodies the potential for both losses and gains and includes
foreign currency risk, interest rate risk, price risk and
reinvestment risk. The Company’s strategy on the management of
market risk is driven by the Company’s investment objective. The
Company’s investment objective is to generate attractive risk
adjusted returns principally through investment in credit
securities.
(i) Price
risk
The
underlying investments comprised in the portfolio are subject to
price risk. The Company is therefore at risk that market events may
affect performance and in particular may affect the value of the
Company’s investments which are valued on a mark to market and mark
to model basis. Price risk is risk associated with changes in
market prices or rates, including interest rates, availability of
credit, inflation rates, economic uncertainty, changes in laws,
national and international political circumstances. The Company’s
policy is to manage price risk by holding a diversified portfolio
of assets, through its investments in credit securities.
The
Company’s policy also stipulates that at purchase, no more than 5%
of the portfolio value can be exposed to any single credit security
or issuer of credit securities.
The
price of a credit security can be affected by a number of factors,
including: (i) changes in the market’s perception of the underlying
assets backing the security; (ii) economic and political factors
such as interest rates and levels of unemployment and taxation
which can have an impact on the arrears, foreclosures and losses
incurred with respect to the pool of assets backing the security;
(iii) changes in the market’s perception of the adequacy of credit
support built into the security’s structure to protect against
losses caused by arrears and foreclosures; (iv) changes in the
perceived creditworthiness of the originator of the security or any
other third parties to the transaction; (v) the speed at which
mortgages or loans within the pool are repaid by the underlying
borrowers (whether voluntary or due to arrears or
foreclosures).
Price
sensitivity analysis
The
following details the Company’s sensitivity to movement in market
prices. The analysis is based on a 15%, 10% and 5% (30 September 2022: 15%, 10% and 5%) increase or
decrease in market prices. This represents management’s best
estimate of a reasonable possible shift in market prices, having
regard to historical volatility.
At
30 September 2023, if the market
prices had been 15%, 10% and 5% (30
September 2022: 15%, 10% and 5%) higher with all other
variables held constant, the increase in the net assets
attributable to equity Shareholders would have been £26,465,352,
£17,643,568 and £8,821,784 respectively (30
September 2022: £22,337,256, £14,891,504 and £7,445,752).
The total comprehensive income for the year would have also
increased by the same amounts. An equal change in the opposite
direction would have decreased the net assets attributable to
equity Shareholders and total comprehensive income respectively.
This price sensitivity analysis covers the market prices received
from price vendors, brokers and those determined using models (such
as discounted cash flow models) on the assumption that the prices
determined from these sources had moved by the indicated
percentages.
Actual trading
results may differ from the above sensitivity analysis and those
differences may be material.
(ii)
Reinvestment risk
Reinvestment risk
is the risk that future coupons from a bond will not be reinvested
at the yield prevailing when the bond was initially
purchased.
A key
determinant of a bond’s yield is the price at which it is purchased
and, therefore, when the market price of bonds generally increases,
the yield of bonds purchased generally decreases. As such, the
overall yield of the portfolio, and therefore the level of
dividends payable to Shareholders, would fall to the extent that
the market prices of credit securities generally rise and the
proceeds of credit securities held by the Company that mature or
are sold are not able to be reinvested in credit securities with a
yield comparable to that of the portfolio as a whole. The Company
assesses reinvestment risk on at least a monthly basis by
calculating the projected amortisation profile of the Company
across the next three years. In addition, changes in the Company’s
yield and income are assessed over the same timeframe as bonds
redeem or mature to identify any periods where reinvestment risk
may be more significant.
(iii)
Interest rate risk
Interest rate
risk arises from the possibility that changes in interest rates
will affect the fair value of financial assets at fair value
through profit or loss.
The
tables below summarise the Company’s exposure to interest rate
risk:
|
|
|
|
|
Floating
rate
|
|
Fixed
rate
|
|
Non-interest
bearing
|
|
Total
|
As at 30
September 2023
|
£
|
|
£
|
|
£
|
|
£
|
Investments
|
|
61,673,658
|
|
114,762,024
|
|
-
|
|
176,435,682
|
Derivative
assets: Forward currency contracts
|
|
-
|
|
-
|
|
373
|
|
373
|
Amounts due from
broker
|
|
|
-
|
|
-
|
|
591,537
|
|
591,537
|
Other
receivables excluding prepaid expenses
|
-
|
|
-
|
|
3,733,422
|
|
3,733,422
|
Cash
and cash equivalents
|
|
|
5,302,091
|
|
-
|
|
-
|
|
5,302,091
|
Derivative
liabilities: Forward currency contracts
|
|
-
|
|
-
|
|
(1,811,101)
|
|
(1,811,101)
|
Amounts due to
broker
|
|
|
|
-
|
|
-
|
|
(937,392)
|
|
(937,392)
|
Other
payables
|
|
|
|
-
|
|
-
|
|
(1,662,752)
|
|
(1,662,752)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
current assets/(liabilities)
|
66,975,749
|
|
114,762,024
|
|
(85,913)
|
|
181,651,860
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Floating
rate
|
|
Fixed
rate
|
|
Non-interest
bearing
|
|
Total
|
As at 30
September 2022
|
£
|
|
£
|
|
£
|
|
£
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments
|
|
49,024,931
|
|
99,890,107
|
|
-
|
|
148,915,038
|
Derivative
assets: Forward currency contracts
|
|
-
|
|
-
|
|
778
|
|
778
|
Amounts due from
broker
|
|
|
-
|
|
-
|
|
855,647
|
|
855,647
|
Other
receivables excluding prepaid expenses
|
-
|
|
-
|
|
3,072,922
|
|
3,072,922
|
Cash
and cash equivalents
|
|
|
674,776
|
|
-
|
|
-
|
|
674,776
|
Derivative
liabilities: Forward currency contracts
|
|
-
|
|
-
|
|
(1,751,254)
|
|
(1,751,254)
|
Other
payables
|
|
|
|
-
|
|
-
|
|
(444,657)
|
|
(444,657)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
current assets
|
|
|
|
49,699,707
|
|
99,890,107
|
|
1,733,436
|
|
151,323,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
Company holds fixed rate and floating rate financial instruments
which, based on current portfolio duration, have
relatively
limited exposure to fair
value interest rate risk as, when the short-term interest rates
increase, the interest rate on a floating rate note will increase.
The maximum time to re-fix interest rates is six months and
therefore the Company has low interest rate risk and, as such it is
not deemed necessary to perform sensitivity analysis over interest
rate risk.
As at
30 September 2023, 62% of the
Company’s net current asset position was invested in fixed rate
securities, however the overall credit spread duration of the
Company was 3.26 years. A credit spread duration of 3.3 indicates
that the portfolio’s value will rise or fall by 3.3 basis points
should the reference credit spread rise or fall by 1bp. The value
of credit securities may be affected by interest rate movements.
Interest receivable on bank deposits or payable on bank overdraft
positions will be affected by fluctuations in interest rates,
however the underlying cash positions will not be
affected.
The
Company’s continuing position in relation to interest rate risk is
monitored on a weekly basis by the Portfolio Manager as part of its
review of the weekly Net Asset Value calculations prepared by the
Company’s Administrator.
The
Company actively trades in debt securities, some of which are
variable rate and linked to interest rate benchmarks. The impact of
the transition from US LIBOR to alternative interest rate
benchmarks will be captured in the change in fair value of these
investments and is not expected to be material to the
Company.
(iv)
Foreign currency risk
Foreign currency
risk is the risk that the value of a financial instrument will
fluctuate due to changes in foreign exchange rates. The Company
invests predominantly in non-sterling assets while its Shares are
denominated in sterling, its expenses are incurred in sterling and
its presentational currency is sterling. Therefore, the Statement
of Financial Position may be significantly affected by movements in
the exchange rate between foreign currencies and sterling. The
Company manages the exposure to currency movements by using spot
and forward foreign exchange contracts, rolling forward on a
periodic basis.
As at
30 September 2023, the Company had
seven (30 September 2022: thirteen)
open forward currency contracts.
Open
forward currency contracts
|
|
|
|
|
|
|
Outstanding
contracts
|
|
Mark
to market equivalent
|
|
Unrealised
losses
|
|
|
|
|
|
Contract
values
|
|
|
|
|
|
|
|
|
30.09.23
|
|
30.09.23
|
|
30.09.23
|
|
30.09.23
|
|
|
|
|
|
Currency
|
|
£
|
|
£
|
|
£
|
Seven
sterling forward foreign currency
|
|
|
|
|
|
|
|
contracts
totalling:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5 EUR
forward foreign currency contract
|
(125,022,666)
|
|
(107,061,730)
|
|
(108,449,257)
|
|
(1,387,527)
|
2 USD
forward foreign currency contract
|
(19,622,562)
|
|
(15,653,617)
|
|
(16,076,818)
|
|
(423,201)
|
|
|
|
|
|
|
|
|
|
|
|
(1,810,728
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
contracts
|
|
Mark
to market equivalent
|
|
Unrealised
losses
|
|
|
|
|
|
Contract
values
|
|
|
|
|
|
|
|
|
30.09.22
|
|
30.09.22
|
|
30.09.22
|
|
30.09.22
|
|
|
|
|
|
Currency
|
|
£
|
|
£
|
|
£
|
Thirteen sterling
forward foreign currency
|
|
|
|
|
|
|
|
contracts
totalling:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9 EUR
forward foreign currency contracts
|
(97,946,859)
|
|
(84,762,465)
|
|
(85,956,857)
|
|
(1,194,392)
|
4 USD
forward foreign currency contracts
|
(23,707,876)
|
|
(20,681,822)
|
|
(21,237,906)
|
|
(556,084)
|
|
|
|
|
|
|
|
|
|
|
|
(1,750,476)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward currency
contracts are not subject to offsetting or master netting
arrangements.
At
year end, the Company had nil (30 September
2022: nil) open spot currency contracts.
As at
30 September 2023 and 2022, the
Company held the following assets and liabilities denominated in
currencies other than Pound sterling:
|
|
|
|
|
|
|
|
|
30.09.23
|
|
30.09.22
|
|
|
|
|
|
|
|
|
|
£
|
|
£
|
|
|
|
|
|
|
|
|
|
|
|
|
EUR
|
|
|
|
|
|
|
|
|
|
|
|
Investments
|
|
|
|
|
|
|
|
104,829,061
|
|
81,335,151
|
Cash
and cash equivalents
|
|
|
|
|
|
|
1,073,740
|
|
316,296
|
Amounts due from
broker and other receivables
|
|
|
|
2,336,941
|
|
2,453,721
|
Less:
Open forward currency contracts
|
|
|
|
|
(108,449,257)
|
|
(85,956,857)
|
USD
|
|
|
|
|
|
|
|
|
|
|
|
Investments
|
|
|
|
|
|
|
|
14,554,879
|
|
20,362,503
|
Cash
and cash equivalents
|
|
|
|
|
|
|
1,347,044
|
|
281,720
|
Amounts due from
broker and other receivables
|
|
|
|
339,103
|
|
512,895
|
Less:
Amounts due to broker
|
|
|
|
|
|
(937,392)
|
|
-
|
Less:
Open forward currency contracts
|
|
|
|
|
(16,076,818)
|
|
(21,237,906)
|
CHF
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
|
|
|
|
|
16,835
|
|
17,166
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(965,864)
|
|
(1,915,311)
|
The
following tables summarise the sensitivity of the Company’s assets
and liabilities to changes in foreign exchange movements between
Euro, US Dollar and Swiss Franc, and the Company functional
currency of sterling as at 30 September
2023 and 2022. The analysis is based on the assumption that
the relevant foreign exchange rate increased/decreased by the
percentage disclosed in the table, with all other variables held
constant. This represents management’s best estimate of a
reasonable possible shift in the foreign exchange rates, having
regard to historical volatility of those rates.
|
|
|
|
|
|
|
|
|
30.09.23
|
|
30.09.22
|
|
|
|
|
|
|
|
|
|
£
|
|
£
|
Impact on
Statement of Comprehensive Income
|
|
|
|
|
|
|
and
Equity in response to a:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 10%
(30.09.22: 10%) increase in EUR/GBP
|
|
|
|
|
19,063
|
|
168,311
|
|
|
|
|
|
|
|
|
|
|
|
|
- 10%
(30.09.22: 10%) decrease in EUR/GBP
|
|
|
|
|
(20,936)
|
|
(185,134)
|
|
|
|
|
|
|
|
|
|
|
|
|
Impact on
Statement of Changes in Equity in response to a:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 10%
(30.09.22: 10%) increase in EUR/GBP
|
|
|
|
|
19,063
|
|
168,311
|
|
|
|
|
|
|
|
|
|
|
|
|
- 10%
(30.09.22: 10%) decrease in EUR/GBP
|
|
|
|
|
(20,936)
|
|
(185,134)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30.09.23
|
|
30.09.22
|
|
|
|
|
|
|
|
|
|
£
|
|
£
|
Impact on
Statement of Comprehensive Income
|
|
|
|
|
|
|
and
Equity in response to a:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 10%
(30.09.22: 10%) increase in USD/GBP
|
|
|
|
|
70,285
|
|
7,342
|
|
|
|
|
|
|
|
|
|
|
|
|
- 10%
(30.09.22: 10%) decrease in USD/GBP
|
|
|
|
|
(77,314)
|
|
(8,082)
|
|
|
|
|
|
|
|
|
|
|
|
|
Impact on
Statement of Changes in Equity in response to a:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 10%
(30.09.22: 10%) increase in USD/GBP
|
|
|
|
|
70,285
|
|
7,342
|
|
|
|
|
|
|
|
|
|
|
|
|
- 10%
(30.09.22: 10%) decrease in USD/GBP
|
|
|
|
|
(77,314)
|
|
(8,082)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30.09.23
|
|
30.09.22
|
|
|
|
|
|
|
|
|
|
£
|
|
£
|
Impact on
Statement of Comprehensive Income
|
|
|
|
|
|
|
and
Equity in response to a:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 10%
(30.09.22: 10%) increase in CHF/GBP
|
|
|
|
|
(1,530)
|
|
(1,561)
|
|
|
|
|
|
|
|
|
|
|
|
|
- 10%
(30.09.22: 10%) decrease in CHF/GBP
|
|
|
|
|
1,683
|
|
1,717
|
|
|
|
|
|
|
|
|
|
|
|
|
Impact on
Statement of Changes in Equity in response to a:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 10%
(30.09.22: 10%) increase in CHF/GBP
|
|
|
|
|
(1,530)
|
|
(1,561)
|
|
|
|
|
|
|
|
|
|
|
|
|
- 10%
(30.09.22: 10%) decrease in CHF/GBP
|
|
|
|
|
1,683
|
|
1,717
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit
risk
Credit risk
refers to the risk that a counterparty will default on its
contractual obligations resulting in financial loss to the Company.
The Company has a credit policy in place and the exposure to credit
risk is monitored on an on-going basis.
The
main concentration of credit risk to which the Company is exposed
arises from the Company’s investments in credit securities. The
credit risk is built into mark to market or mark to model pricing.
The Company is also exposed to counterparty credit risk on
forwards, cash and cash equivalents, amounts due from brokers and
other receivable balances.
The
Company’s policy is to manage this risk by maintaining a portfolio
diversified by issuer. While the prospectus permits no more than 5%
of the portfolio value to be invested in any single credit security
or issuer of credit securities, the Portfolio Manager operates to
stricter exposures dependent on the credit rating of each single
credit security or issuer of credit securities.
Portfolio of debt
securities and cash and cash equivalents by ratings category using
the highest rating assigned by Standard and Poor’s (“S&P”),
Moody’s Analytics (“Moody’s”) or Fitch Ratings
(“Fitch”):
|
|
|
|
|
|
|
|
|
30.09.23
|
|
30.09.22
|
A+
|
|
|
|
|
|
|
|
|
2.93%
|
|
0.45%
|
A
|
|
|
|
|
|
|
|
|
1.05%
|
|
0.00%
|
BBB+
|
|
|
|
|
|
|
|
|
0.51%
|
|
0.00%
|
BBB
|
|
|
|
|
|
|
|
|
5.29%
|
|
3.45%
|
BBB-
|
|
|
|
|
|
|
|
|
12.20%
|
|
10.53%
|
BB+
|
|
|
|
|
|
|
|
|
11.40%
|
|
10.56%
|
BB
|
|
|
|
|
|
|
|
|
8.77%
|
|
10.63%
|
BB-
|
|
|
|
|
|
|
|
|
9.79%
|
|
7.41%
|
B+
|
|
|
|
|
|
|
|
|
11.86%
|
|
12.82%
|
B
|
|
|
|
|
|
|
|
|
7.59%
|
|
10.49%
|
B-
|
|
|
|
|
|
|
|
|
14.37%
|
|
13.42%
|
CCC+
|
|
|
|
|
|
|
|
|
2.51%
|
|
3.58%
|
CCC
|
|
|
|
|
|
|
|
|
0.00%
|
|
0.00%
|
CCC-
|
|
|
|
|
|
|
|
|
0.29%
|
|
0.00%
|
CC
|
|
|
|
|
|
|
|
|
0.00%
|
|
0.07%
|
C
|
|
|
|
|
|
|
|
|
0.00%
|
|
0.06%
|
Not
Rated*
|
|
|
|
|
|
|
|
|
11.44%
|
|
16.53%
|
|
|
|
|
|
|
|
|
|
100.00%
|
|
100.00%
|
*The
non-rated exposure within the Company is managed in exactly the
same way as the exposure to any other rated bond in the portfolio.
A bond not rated by any of Moody’s, S&P or Fitch does not
necessarily translate as poor credit quality. Often smaller
issues/tranches, or private deals which the Company holds, will not
apply for a rating due to the cost of doing so from the relevant
credit agencies. The Portfolio Manager has no significant credit
concerns with the unrated, or rated, asset-backed securities or
corporate bonds currently held.
To
further understand credit risk, the Portfolio Manager undertakes
extensive due diligence procedures on investments in credit
securities and monitors the on-going investment in these
securities.
The
Company manages its counterparty exposure in respect of cash and
cash equivalents and forward currency contracts by investing with
counterparties with a “single A” or higher credit rating. The
majority of cash is currently placed with Northern Trust
(Guernsey) Limited. The Company is
subject to credit risk to the extent that this institution may be
unable to return this cash. Northern Trust (Guernsey) Limited is a wholly owned subsidiary
of The Northern Trust Corporation. The Northern Trust Corporation
is publicly traded and a constituent of S&P 500. The Northern
Trust Corporation has a credit rating of A+ from Standard &
Poor's and A2 from Moody's.
The
Company’s maximum credit exposure is limited to the carrying amount
of financial assets recognised as at the Statement of Financial
Position date, as summarised below:
|
|
|
|
|
|
|
|
|
30.09.23
|
|
30.09.22
|
|
|
|
|
|
|
|
|
|
£
|
|
£
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments
|
|
|
|
|
|
|
|
176,435,682
|
|
148,915,038
|
Amounts due from
broker
|
|
|
|
|
|
|
591,537
|
|
855,647
|
Cash
and cash equivalents
|
|
|
|
|
|
|
5,302,091
|
|
674,776
|
Derivative
assets: Forward currency contracts
|
|
|
|
|
373
|
|
778
|
Other
receivables excluding prepaid expenses
|
|
|
|
|
3,733,422
|
|
3,072,922
|
|
|
|
|
|
|
|
|
|
186,063,105
|
|
153,519,161
|
Investments in
credit securities that are not backed by underlying asset pools
present certain risks that are not presented by asset-backed
securities (“ABS”). Primarily, these securities may not have the
benefit of the same security interest in the related collateral.
Therefore, there is a possibility that recoveries on defaulted
collateral may not, in some cases, be available to support payments
on these securities. The risk of investing in these types of
securities is ultimately dependent upon payment of the underlying
debt by the debtor. The Portfolio Manager undertakes extensive due
diligence procedures on investments in securities and monitors the
on-going investment in these securities.
The
most significant balance of other receivables is interest
receivables and its credit risk is the same as the
securities.
Liquidity
risk
Liquidity risk is
the risk that the Company may not be able to generate sufficient
cash resources to settle its obligations in full as they fall due
or can only do so on terms that are materially
disadvantageous.
Investments made
by the Company in credit securities may be relatively illiquid and
this may limit the ability of the Company to realise its
investments for the purposes of cash management such as generating
cash for dividend payments to Shareholders or buying back Ordinary
Shares under the Quarterly Tenders or in the market. Investments in
credit securities may also have no active market and the Company
also has no redemption rights in respect of these investments. The
Company has the ability to borrow to ensure sufficient cash
flows.
The
Portfolio Manager considers expected cash flows from financial
assets in assessing and managing liquidity risk, in particular its
cash resources and trade receivables. Cash flows from trade and
other receivables are all contractually due within twelve
months.
The
Portfolio Manager shall maintain a liquidity management policy to
monitor the liquidity risk of the Company.
Shareholders have
no right to have their shares redeemed or repurchased by the
Company, except as detailed under the Capital risk management
(Quarterly tenders) section of this note. Shareholders otherwise
wishing to release their investment in the Company are therefore
required to dispose of their shares on the market.
The
following table analyses the Company’s liabilities into relevant
maturity groupings based on the maturities at the Statement of
Financial Position date. The amounts in the table are the
undiscounted net cash flows on the financial
liabilities:
|
|
|
|
|
Up to 1
month
|
|
1-6
months
|
|
6-12
months
|
|
Total
|
As at 30
September 2023
|
|
|
£
|
|
£
|
|
£
|
|
£
|
Amounts due to
broker
|
|
(937,392)
|
|
-
|
|
-
|
|
(937,392)
|
Derivative
liabilities: Forward currency contracts
|
|
-
|
|
(1,811,101)
|
|
-
|
|
(1,811,101)
|
Other
payables
|
|
|
|
(1,553,502)
|
|
(109,250)
|
|
-
|
|
(1,662,752)
|
Total
|
|
|
|
|
(2,490,894)
|
|
(1,920,351)
|
|
-
|
|
(4,411,245)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Up to 1
month
|
|
1-6
months
|
|
6-12
months
|
|
Total
|
As at 30
September 2022
|
|
|
£
|
|
£
|
|
£
|
|
£
|
Derivative
liabilities: Forward currency contracts
|
|
-
|
|
(1,751,254)
|
|
-
|
|
(1,751,254)
|
Other
payables
|
|
|
|
(370,462)
|
|
(74,195)
|
|
-
|
|
(444,657)
|
Total
|
|
|
|
|
(370,462)
|
|
(1,825,449)
|
|
-
|
|
(2,195,911)
|
Capital
risk management
The
Company manages its capital to ensure that it is able to continue
as a going concern while following the Company’s stated investment
policy. The capital structure of the Company consists of
Shareholders’ equity, which comprises share capital and retained
earnings. To maintain or adjust the capital structure, the Company
may return capital to Shareholders or issue new Shares. There are
no regulatory requirements to return capital to
Shareholders.
(i) Quarterly
tenders
With
the objective of minimising the risk of the Ordinary Shares trading
at a discount to NAV and to assist in the narrowing of any discount
at which the Ordinary Shares may trade from time to time, the
Company has incorporated into its structure a mechanism (a
“Quarterly Tender”), contingent on certain factors as described
below, which can be exercised at the discretion of the Directors,
to provide Shareholders with a quarterly opportunity to submit
Ordinary Shares for placing or repurchase by the Company at a price
representing a discount of no more than 2% to the then prevailing
NAV.
Upon
confirmation of the number of Tender Requests made in respect of
each Quarter Record Date, the Company intends first, through its
broker acting on a reasonable endeavours basis, to seek to satisfy
Tender Requests by placing the Tendered Shares with investors in
the secondary market.
Second, subject
to Tender Restrictions, the Company repurchases any Tendered Shares
not placed in the secondary market for cancellation or to be held
in Treasury.
It is
anticipated that the Company will tender on a quarterly basis for
up to 20% of the Ordinary Shares in issue as at the relevant
Quarter Record Date, subject to an aggregate limit of 50% of the
Ordinary Shares in issue in any twelve-month period ending on the
relevant Quarter Record Date. If tender
requests are in excess of 20%, tenders will be scaled back on a
pro-rata basis.
(ii) Share
buybacks
The
Company has been granted the authority to make market purchases of
up to a maximum of 14.99% of the aggregate number of Ordinary
Redeemable Shares in issue immediately following Admission at a
price not exceeding the higher of (i) 5% above the average of the
mid-market values of the Ordinary Redeemable Shares for the 5
business days before the purchase is made or, (ii) the higher of
the price of the last independent trade and the highest current
investment bid for the Ordinary Redeemable Shares.
In
deciding whether to make any such purchases, the Directors will
have regard to what they believe to be in the best interests of
Shareholders as a whole, to the applicable legal requirements and
any other requirements in its Articles. The making and timing of
any buybacks will be at the absolute discretion of the Board and
not at the option of the Shareholders, and is expressly subject to
the Company having sufficient surplus cash resources available
(excluding borrowed moneys).
The
Listing Rules prohibit the Company from conducting any share
buybacks during close periods immediately preceding the publication
of annual and interim results.
(iii)
Continuation votes
In
the event that:
(i)
the Dividend Target, as disclosed in note 19, is not met;
or
(ii)
on any Tender Submission Deadline, applications for the Company to
repurchase 50% or more of the Company’s issued Ordinary Shares,
calculated as at the relevant Quarter Record Date, are received by
the Company,
a
General Meeting will be convened at which the Directors will
propose an Ordinary Resolution that the Company should continue as
an investment company.
If
any such Ordinary Resolution is not passed, the Directors shall
draw up proposals for the voluntary liquidation, unitisation,
reorganisation or reconstruction of the Company for submission to
the members of the Company at a General Meeting to be convened by
the Directors for a date not more than 6 months after the date of
the meeting at which such Ordinary Resolution was not
passed.
17. Fair
value measurement
All assets and
liabilities are carried at fair value or at carrying value which
equates to fair value.
IFRS
13 requires the Company to classify fair value measurements using a
fair value hierarchy that reflects the significance of the inputs
used in making the measurements. The fair value hierarchy has the
following levels:
(i) Quoted
prices (unadjusted) in active markets for identical assets or
liabilities (Level 1).
(ii)
Inputs other than quoted prices included within Level 1 that are
observable for the asset or liability, either directly (that is, as
prices) or indirectly (that is, derived from prices including
interest rates, yield curves, volatilities, prepayment speeds,
credit risks and default rates) or other market corroborated inputs
(Level 2).
(iii)
Inputs for the asset or liability that are not based on observable
market data (that is, unobservable inputs) (Level 3).
The following
table analyses within the fair value hierarchy the Company’s
financial assets and liabilities (by class) measured at fair value
as at 30 September 2023.
|
|
|
Level
1
|
|
Level
2
|
|
Level
3
|
|
Total
|
|
|
|
£
|
|
£
|
|
£
|
|
£
|
Assets
|
|
|
|
|
|
|
|
|
Financial assets
at fair value through profit or loss
|
|
|
|
|
|
|
|
|
-
Investments
|
|
|
|
|
|
|
|
|
|
-
Corporate bonds
|
|
|
-
|
|
114,210,465
|
|
-
|
|
114,210,465
|
-
Asset-backed securities
|
|
|
-
|
|
56,636,292
|
|
5,588,925
|
|
62,225,217
|
-
Derivative assets: Forward currency contracts
|
|
-
|
|
373
|
|
-
|
|
373
|
|
|
|
|
|
|
|
|
|
|
Total
assets as at 30 September 2023
|
|
-
|
|
170,847,130
|
|
5,588,925
|
|
176,436,055
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Financial
liabilities at fair value through profit or loss
|
|
|
|
|
|
|
|
|
-
Derivative liabilities: Forward currency contracts
|
|
-
|
|
1,811,101
|
|
-
|
|
1,811,101
|
Total
liabilities as at 30 September 2023
|
|
-
|
|
1,811,101
|
|
-
|
|
1,811,101
|
The following
table analyses within the fair value hierarchy the Company’s
financial assets and liabilities (by class) measured at fair value
as at 30 September 2022.
|
|
|
Level
1
|
|
Level
2
|
|
Level
3
|
|
Total
|
|
|
|
£
|
|
£
|
|
£
|
|
£
|
Assets
|
|
|
|
|
|
|
|
|
Financial assets
at fair value through profit or loss
|
|
|
|
|
|
|
|
|
-
Investments
|
|
|
|
|
|
|
|
|
-
Corporate bonds
|
|
-
|
|
95,890,726
|
|
-
|
|
95,890,726
|
-
Asset-backed securities
|
|
-
|
|
45,313,705
|
|
7,710,607
|
|
53,024,312
|
-
Derivative assets: Forward currency contracts
|
|
-
|
|
778
|
|
-
|
|
778
|
|
|
|
|
|
|
|
|
|
|
Total
assets as at 30 September 2022
|
|
-
|
|
141,205,209
|
|
7,710,607
|
|
148,915,816
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Financial
liabilities at fair value through profit or loss
|
|
|
|
|
|
|
|
|
-
Derivative liabilities: Forward currency contracts
|
|
-
|
|
1,751,254
|
|
-
|
|
1,751,254
|
Total
liabilities as at 30 September 2022
|
|
-
|
|
1,751,254
|
|
-
|
|
1,751,254
|
Credit securities
which have a value based on quoted market prices in active markets
are classified as Level 1. At the end of the period, no credit
securities held by the Company are classified as Level
1.
Credit securities
which are not traded or dealt on organised markets or exchanges are
classified as Level 2 or Level 3. Credit securities with prices
obtained from independent price vendors, where the Portfolio
Manager is able to assess whether the observable inputs used for
their modelling of prices are accurate and the Portfolio Manager
has the ability to challenge these vendors with further observable
inputs, are classified as Level 2. Prices obtained from vendors who
are not easily challengeable or transparent in showing their
assumptions for the method of pricing or where an independent value
is sought from an external provider based on an appropriate
valuation model, are classified as Level 3. Credit securities
priced at an average of two vendors’ prices are classified as Level
3.
Where
the Portfolio Manager determines that the price obtained from an
independent price vendor is not an accurate representation of the
fair value of the credit security, the Portfolio Manager may source
prices from third party dealer quotes and if the price represents a
reliable and an observable price, the credit security is classified
as Level 2. Any dealer quote that is over 20 days old is considered
stale and is classified as Level 3. Furthermore, the Portfolio
Manager may determine that the application of a mark-to-model basis
may be appropriate where they believe such a model will result in
more reliable information with regards to the fair value of any
specific investments and are also classified as Level 3
investments.
The
Portfolio Manager also took advantage of engaging a third party
valuer to value certain investments (primarily residential
mortgage-backed security assets). The valuation of these assets and
others that the Portfolio Manager may deem appropriate to provide
fair value, primarily use discounted cash flow analysis but may
also include the use of a comparable arm's length transaction,
reference to other securities that are substantially the same, and
other valuation techniques commonly used by market participants
making the maximum use of market inputs and relying as little as
possible on entity-specific inputs. As at 30
September 2023, investments representing 3.2% of the
portfolio were valued by the third party valuer.
Although the
models used do utilise unobservable inputs such as discount
margins, constant default rate and constant prepayment rate. It is
the Board’s and Portfolio Manager’s views that any reasonable
movement in the key unobservable inputs would not yield a
significant change in fair value to the portfolio and as a result,
a sensitivity analysis relating to the unobservable inputs related
to these models has not been presented.
There
were no transfers between levels during the year.
The
following table presents the movement in Level 3 instruments for
the year ended 30 September 2023 by
class of financial instrument.
|
|
|
Bonds
|
|
|
Asset-backed
securities
|
|
Total
|
|
|
|
|
|
|
|
|
|
30
September 2023
|
|
|
£
|
|
|
£
|
|
£
|
|
|
|
|
|
|
|
|
|
Opening
balance
|
|
|
-
|
|
|
7,710,607
|
|
7,710,607
|
Net
disposals
|
|
|
-
|
|
|
(2,254,534)
|
|
(2,254,534)
|
Net
realised losses for the year
|
|
|
-
|
|
|
(428,973)
|
|
(428,973)
|
Net
unrealised gains for the year
|
|
|
-
|
|
|
561,825
|
|
561,825
|
|
|
|
|
|
|
|
|
|
Closing
balance
|
|
|
-
|
|
|
5,588,925
|
|
5,588,925
|
|
|
|
|
|
|
|
|
|
The following
table presents the movement in Level 3 instruments for the year
ended 30 September 2022 by class of
financial instrument.
|
|
|
Bonds
|
|
|
Asset-backed
securities
|
|
Total
|
|
|
|
|
|
|
|
|
|
30
September 2022
|
|
|
£
|
|
|
£
|
|
£
|
|
|
|
|
|
|
|
|
|
Opening
balance
|
|
|
-
|
|
|
12,771,617
|
|
12,771,617
|
Net
disposals
|
|
|
-
|
|
|
(4,676,067)
|
|
(4,676,067)
|
Net
realised gains for the year
|
|
|
-
|
|
|
262,161
|
|
262,161
|
Net
unrealised losses for the year
|
|
|
-
|
|
|
(647,104)
|
|
(647,104)
|
|
|
|
|
|
|
|
|
|
Closing
balance
|
|
|
-
|
|
|
7,710,607
|
|
7,710,607
|
The
following table analyses within the fair value hierarchy the
Company’s assets and liabilities not measured at fair value at
30 September 2023, but for which fair
value is disclosed.
|
|
|
Level
1
|
|
Level
2
|
|
Level
3
|
|
Total
|
30
September 2023
|
|
£
|
|
£
|
|
£
|
|
£
|
Assets
|
|
|
|
|
|
|
|
|
|
Amounts due from
broker
|
|
-
|
|
591,537
|
|
-
|
|
591,537
|
Other
receivables excluding prepaid expenses
|
-
|
|
3,733,422
|
|
-
|
|
3,733,422
|
Cash
and cash equivalents
|
|
5,302,091
|
|
-
|
|
-
|
|
5,302,091
|
Total
|
|
|
5,302,091
|
|
4,324,959
|
|
-
|
|
9,627,050
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
Amounts due to
broker
|
|
-
|
|
937,392
|
|
-
|
|
937,392
|
Other
payables
|
|
|
-
|
|
1,662,752
|
|
-
|
|
1,662,752
|
Total
|
|
|
-
|
|
2,600,144
|
|
-
|
|
2,600,144
|
The following
table analyses within the fair value hierarchy the Company’s assets
and liabilities not measured at fair value at 30 September 2022, but for which fair value is
disclosed.
|
|
|
Level
1
|
|
Level
2
|
|
Level
3
|
|
Total
|
30
September 2022
|
|
£
|
|
£
|
|
£
|
|
£
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
Amounts due from
broker
|
|
-
|
|
855,647
|
|
-
|
|
855,647
|
Other
receivables excluding prepaid expenses
|
-
|
|
3,072,922
|
|
-
|
|
3,072,922
|
Cash
and cash equivalents
|
|
674,776
|
|
-
|
|
-
|
|
674,776
|
Total
|
|
|
674,776
|
|
3,928,569
|
|
-
|
|
4,603,345
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
Other
payables
|
|
|
-
|
|
444,657
|
|
-
|
|
444,657
|
Total
|
|
|
-
|
|
444,657
|
|
-
|
|
444,657
|
The
assets and liabilities included in the above tables are carried at
amortised cost; due to their short-term nature, their carrying
values are a reasonable approximation of fair value.
Cash
and cash equivalents include deposits held with banks.
Amounts due to
brokers and other payables represent the contractual amounts and
obligations due by the Company for settlement of trades and
expenses.
Amounts due from
brokers and other receivables represent the contractual amounts and
rights due to the Company for settlement of trades and
income.
18. Segmental
reporting
The
Board is responsible for reviewing the Company’s entire portfolio
and considers the business to have a single operating segment. The
Board’s asset allocation decisions are based on a single,
integrated investment strategy, and the Company’s performance is
evaluated on an overall basis.
The
Company invests in a diversified portfolio of credit securities.
The fair value of the major financial instruments held by the
Company and the equivalent percentages of the total value of the
Company are reported in the Top Twenty Holdings.
Revenue earned is
reported separately on the face of the Statement of Comprehensive
Income as interest income on financial assets at fair value through
profit and loss being interest income received from credit
securities.
19. Dividend
policy
The Board intends
to distribute an amount at least equal to the value of the
Company’s excess income, as defined below, arising each financial
year to the holders of Ordinary Shares. However, there is no
guarantee that the Dividend Target of 6.0
pence per Ordinary Share for each financial year will be met
or that the Company will make any distributions at all.
Excess income is
defined as the distributions made with respect to any income
period, which comprise (a) the accrued income of the portfolio for
the period (for these purposes, the Company’s income will include
the interest payable by the credit securities in the portfolio and
amortisation of any discount or premium to par at which a credit
security is purchased over its remaining expected life); (b) an
additional amount to reflect any income purchased in the course of
any share subscriptions that took place during the period.
Including purchased income in this way ensures that the income
yield of the shares is not diluted as a consequence of the issue of
new shares during an income period; (c) any relevant expenses less
50% of the portfolio management fees for the period; and (d) any
gain/(loss) on the foreign exchange contracts caused by the
interest rate differentials between each foreign exchange currency
pair which is reflected in each pair’s forward foreign exchange
rate. This definition differs from the IFRS “net income” definition
which also recognises gains and losses on financial
assets.
The
Company declared the following dividends in respect of the profit
for the year ended 30 September 2023:
Period
to
|
Dividend
per Share (pence)
|
|
Dividend
declared (£)
|
|
Ex-dividend
date
|
|
Record
date
|
|
Pay
date
|
31
October 2022
|
0.50
|
|
1,105,068
|
|
17
November 2022
|
|
18
November 2022
|
|
2
December 2022
|
30
November 2022
|
0.50
|
|
1,129,068
|
|
15
December 2022
|
|
16
December 2022
|
|
30
December 2022
|
30
December 2022
|
0.50
|
|
1,149,068
|
|
19
January 2023
|
|
20
January 2023
|
|
3
February 2023
|
31
January 2023
|
0.50
|
|
1,195,318
|
|
16
February 2023
|
|
17
February 2023
|
|
3
March 2023
|
28
February 2023
|
0.50
|
|
1,218,818
|
|
16
March 2023
|
|
17
March 2023
|
|
31
March 2023
|
31
March 2023
|
0.50
|
|
1,221,318
|
|
20
April 2023
|
|
21
April 2023
|
|
5 May
2023
|
28
April 2023
|
0.50
|
|
1,221,318
|
|
18
May 2023
|
|
19
May 2023
|
|
2
June 2023
|
31
May 2023
|
0.50
|
|
1,221,318
|
|
15
June 2023
|
|
16
June 2023
|
|
30
June 2023
|
30
June 2023
|
0.50
|
|
1,204,122
|
|
20
July 2023
|
|
21
July 2023
|
|
4
August 2023
|
31
July 2023
|
0.50
|
|
1,204,122
|
|
17
August 2023
|
|
18
August 2023
|
|
1
September 2023
|
31
August 2023
|
0.50
|
|
1,204,122
|
|
21
September 2023
|
|
22
September 2023
|
|
6
October 2023
|
29
September 2023
|
1.87
|
|
4,493,959
|
|
19
October 2023
|
|
20
October 2023
|
|
3
November 2023
|
The
Company declared the following dividends in respect of the profit
for the year ended 30 September 2022:
Period
to
|
Dividend
per Share (pence)
|
|
Dividend
declared (£)
|
|
Ex-dividend
date
|
|
Record
date
|
|
Pay
date
|
29
October 2021
|
0.50
|
|
966,193
|
|
18
November 2021
|
|
19
November 2021
|
|
30
November 2021
|
30
November 2021
|
0.50
|
|
966,193
|
|
16
December 2021
|
|
17
December 2021
|
|
5
January 2022
|
31
December 2021
|
0.50
|
|
978,693
|
|
20
January 2021
|
|
21
January 2022
|
|
4
February 2022
|
31
January 2022
|
0.50
|
|
998,693
|
|
17
February 2022
|
|
18
February 2022
|
|
4
March 2022
|
28
February 2022
|
0.50
|
|
1,014,818
|
|
17
March 2022
|
|
18
March 2022
|
|
1
April 2022
|
31
March 2022
|
0.50
|
|
1,029,318
|
|
14
April 2022
|
|
19
April 2022
|
|
6 May
2022
|
29
April 2022
|
0.50
|
|
1,037,818
|
|
19
May 2022
|
|
20
May 2022
|
|
6
June 2022
|
31
May 2022
|
0.50
|
|
1,043,318
|
|
16
June 2022
|
|
17
June 2022
|
|
1
July 2022
|
30
June 2022
|
0.50
|
|
1,049,818
|
|
14
July 2022
|
|
15
July 2022
|
|
29
July 2022
|
29
July 2022
|
0.50
|
|
1,070,568
|
|
18
August 2022
|
|
19
August 2022
|
|
2
September 2022
|
31
August 2022
|
0.50
|
|
1,078,568
|
|
15
September 2022
|
|
16
September 2022
|
|
30
September 2022
|
30
September 2022
|
0.89
|
|
1,928,308
|
|
20
October 2022
|
|
21
October 2022
|
|
4
November 2022
|
Under
The Companies (Guernsey) Law, 2008, the Company can distribute
dividends from capital and revenue reserves, subject
to the
net asset and solvency test. The net asset and solvency
test considers whether a company is able to pay its debts when they
fall due, and whether the value of a company’s assets is greater
than its liabilities. The Board confirms that the Company passed
the net
asset and solvency test for each dividend paid.
20. Ultimate
controlling party
In the opinion of
the Directors on the basis of shareholdings advised to them, the
Company has no ultimate controlling party.
21. Subsequent
events
These
Financial Statements were approved for issuance by the Board on 14
December 2023. Subsequent events have been evaluated to this
date.
Subsequent
to the year end and up to the date of signing of the Annual Report
and Audited Financial Statements, the following events took
place:
Dividend
declarations
Declaration
date
|
Dividend
rate per Share (pence)
|
12
October 2023
|
1.87
|
9
November 2023
|
0.50
|
14
December 2023
|
0.50
|
Tenders
On 5
October 2023, 1,039,168 shares were tendered, 539,168 of which were
placed and 500,000 were repurchased by the Company and held in
Treasury.
Other
Richard Class was
appointed a Director with effect from 1 November 2023.
GLOSSARY
OF TERMS AND ALTERNATIVE PERFORMANCE MEASURES
Alternative
Performance Measures (“APMs”)
In
accordance with ESMA Guidelines on Alternative Performance Measures
("APMs"), the Board has considered what APMs are included in the
Annual Report and Audited Financial Statements which require
further clarification. APMs are defined as a financial measure of
historical or future financial performance, financial position or
cash flows, other than a financial measure defined or specified in
the applicable financial reporting framework. The APMs included in
the annual report and accounts are unaudited and outside the scope
of IFRS.
Dividends
Declared
Dividends
declared are the dividends that are announced in respect of the
current accounting period.
Dividend
Target
The
Company maintains an
annual minimum dividend target of at least 6p per Ordinary
Share.
Net Asset
Value (“NAV”)
NAV
is the assets attributable to Shareholders expressed as an amount
per individual share. NAV is calculated using the accounting
standards specified by International Financial Reporting Standards
(“IFRS”) and consists of total assets, less total
liabilities.
NAV per
Share
NAV
per share is calculated by dividing the total net asset value of
£181,689,040 (2022: £151,334,878) by the number of shares at the
end of the year of 240,824,331 shares (2022: 216,213,518). This
produces a NAV per share of 75.44p (2022: 69.99p), which was a
increase of 7.79%
(2022: decrease
of 25.74%).
NAV Total
Return/(Loss) per Share
NAV
total return/(loss) per share is the percentage increase or
decrease in NAV, inclusive of dividends paid and reinvested, in the
reporting period. It is calculated by adding the increase or
decrease in NAV per share with the dividend per share when paid and
reinvested back into the NAV, and dividing it by the NAV per share
at the start of the period.
Ongoing
Charges
The
ongoing charges represent the Company’s management fee and all
other operating expenses, excluding finance costs, expressed as a
percentage of the average of the daily net assets during the year.
The Board continues to be conscious of expenses and works hard to
maintain a sensible balance between good quality service and
cost.
Portfolio
Performance
Portfolio
performance is calculated by summing interest earned, realised and
unrealised gains or losses on investments, less unrealised foreign
exchange gains or losses on investments during the year and
dividing by closing book cost for the year, stated as a
percentage.
Premium/Discount
If
the share price of an investment company is lower than the NAV per
share, the shares are said to be trading at a discount. The size of
the discount is calculated by subtracting the share price from the
NAV per share and is usually expressed as a percentage of the NAV
per share. If the share price is higher than the NAV per share, the
shares are said to be trading at a premium.
CORPORATE
INFORMATION
Directors
Ashley Paxton
(Chairman)
|
|
Receiving
Agent
Computershare
Investor Services PLC
|
Sharon Parr
(appointed 1 November 2022)
|
|
The
Pavillions
|
Wendy
Dorey (appointed 1 February 2023)
|
|
Bridgewater
Road
|
Richard Class
(appointed 1 November 2023)
|
|
Bristol, BS13
8AE
|
Claire Whittet
(resigned 11 August 2023)
|
|
|
Ian
Martin (resigned 1 February 2023)
|
|
|
|
|
|
Registered
Office
|
|
UK Legal
Adviser to the Company
|
PO
Box 255
|
|
Eversheds
Sutherland (International) LLP
|
Trafalgar
Court
|
|
One
Wood Street
|
Les
Banques
|
|
London, EC2V
7WS
|
St
Peter Port
|
|
|
Guernsey, GY1
3QL
|
|
|
|
|
|
Portfolio
Manager
|
|
Guernsey
Legal Adviser to the Company
|
TwentyFour Asset
Management LLP
|
|
Carey
Olsen (Guernsey) LLP
|
8th
Floor, The Monument Building
|
|
Carey
House
|
11
Monument Street
|
|
Les
Banques
|
London, EC3R
8AF
|
|
St
Peter Port
|
|
|
Guernsey, GY1
4BZ
|
|
|
|
Alternative
Investment Fund Manager
|
|
Independent
Auditor
|
Apex
Fundrock Limited
|
|
PricewaterhouseCoopers
CI LLP
|
(Previously
called Maitland Institutional Services Limited)
|
|
PO
Box 321
|
Hamilton
Centre
|
|
Royal
Bank Place
|
Rodney
Way
|
|
Glategny
Esplanade
|
Chelmsford, CM1
3BY
|
|
St
Peter Port
|
|
|
Guernsey, GY1
4ND
|
|
|
|
Custodian,
Principal Banker and Depositary
|
|
Registrar
|
Northern Trust
(Guernsey) Limited
|
|
Computershare
Investor Services (Guernsey) Limited
|
PO
Box 71
|
|
1st
Floor
|
Trafalgar
Court
|
|
Tudor
House
|
Les
Banques
|
|
Le
Bordage
|
St
Peter Port
|
|
St
Peter Port
|
Guernsey, GY1
3DA
|
|
Guernsey, GY1
1DB
|
|
|
|
|
|
|
Administrator
and Company Secretary
|
|
Financial
Adviser and Corporate Broker
|
Northern Trust
International Fund Administration
Services
(Guernsey) Limited
|
|
Deutsche Numis
Limited
45
Gresham Street
|
PO
Box 255
|
|
London, EC2V
7BF
|
Trafalgar
Court
|
|
|
Les
Banques
|
|
|
St
Peter Port
|
|
|
Guernsey, GY1
3QL
|
|
|