Annual Financial Report

RNS Number : 0656V

Axiom European Financial Debt Fd Ld

04 April 2019

4 April 2019

Axiom European Financial Debt Fund Limited

(the "Company")

Annual Financial Report for the year ended 31 December 2018

Axiom European Financial Debt Fund Limited, a closed-ended Guernsey fund, today announces its Annual Financial Report for the year ended 31 December 2018.

Highlights
	31 December 2018	31 December 2017
Net assets	£76,976,000	£79,364,000
Net asset value ("NAV") per Ordinary Share	90.08p	104.43p
Share price	88.00p	105.25p
(Discount)/premium to NAV	(2.31)%	0.79%
(Loss)/profit for the year	£(7,099,000)	£9,743,000
Dividend per share declared in respect of the year	6.00p	6.00p
Total return per Ordinary Share (based on NAV) [1]	-8.00%	+16.14%
Total return per Ordinary Share (based on share price) [1]	-10.69%	+20.43%
Ordinary Shares in issue at year end [2]	85,452,024	75,999,351

[1]	Total return per Ordinary Share has been calculated by comparing the NAV or share price, as applicable, at the start of the year with the NAV or share price, as applicable, plus dividends paid, at the year end.
[2]	On 4 February 2019, the Company issued 6,400,880 new Ordinary Shares, raising gross proceeds of £5.94 million. At the date of signing this report, there were 91,852,904 Ordinary Shares in issue.

William Scott, Chairman, commented:

"The Company made good progress on several fronts during what was a challenging market background in 2018. In absolute terms, investment returns were frustrating: taking into account dividends paid, the total return per share over the year net of all expenses was -8.0% (2017: +16.14%). After a recovery in the third quarter of the year, the vast majority of this loss occurred in the final quarter of 2018. I am pleased to say that most of this has been recouped in the first quarter of 2019 and up to 29 March 2019 (the latest available data at the time of writing), the total return per share net of all expenses is +6.00%.

"The investment thesis that the Company was set up to exploit, namely change in the regulatory environment applying to the capital structures of financial institutions, remains intact. Regulatory change is relentless. Indeed, the opportunity set within the AT1 asset class continues to grow as more issuers tap the markets. The Company outperformed all funds in our immediate peer group in 2017, remained in the middle of the peer group performance pack in 2018 in tough market conditions and, since the beginning of 2019, in the market recovery, performance has been impressive at 6.00% as at the time of writing, above any other fund in the asset class.

"We and our Investment Manager, Axiom, therefore remain positive and continue to believe the Company is well positioned to capture the value inherent in the sector."

Gildas Surry, Investment Manager, said:

"Over the year, the spreads of subordinated debt have widened from 104 bps to 227 bps. We believe the decline in financial valuations is not justified given the strong fundamentals. The latter have not stopped improving since the crisis (average capital level significantly increased to 14.70% in September 2018, four times as much as in 2007) and we have seen a number of favourable developments throughout the year confirming the continuous normalisation of European bank balance sheets: ongoing improvement in credit metrics alongside a steady reduction in stocks of non-performing bank loans (average NPL ratio down to 3.4% in September 2018), strong quarterly results, sustained momentum in credit rating upgrades, and stress tests passed with success on historically severe assumptions. Only Italian banks remain under close surveillance.

"We believe this dichotomy between fundamentals and valuations offers very attractive entry points: the underlying credit quality has not changed, and prices should recover as soon as the negative sentiment reverses.

"Finally, on the regulatory side, the latest updates in the Banking Package (CRD5 / CRR2 / BRRD2 / SRMR) brought more visibility while confirming the potential performance of our legacy strategies. The implementation of MREL continues to provide an attractive set of investment opportunities within the asset class and we see the regulatory catalyst as relevant as ever.

"For the above reasons, we remain constructive and continue to believe the Company is well positioned in capturing the value of the sector."

Enquiries to:

Axiom Alternative Investments SARL

David Benamou

Gildas Surry

Jerome Legras

www.axiom-ai.com

Tel: +44 20 3807 0670

Elysium Fund Management Limited

axiom@elysiumfundman.com

Tel: +44 1481 810 100

MHP Communications

Reg Hoare

Giles Robinson

Charles Hirst

axiom@mhpc.com

Tel: +44 20 3128 8100

A copy of the Company's Annual Report and Financial Statements for the year ended 31 December 2018 will shortly be available to view and download from the Company's website, http://axiom-ai.com/web/en/axiom-european-financial-debt-fund-limited-2/. Neither the contents of the Company's website nor the contents of any website accessible from hyperlinks on the Company's website (or any other website) is incorporated into or forms part of this announcement.

The following text is extracted from the Annual Report and Financial Statements of the Company for the year ended 31 December 2018:

Strategic Report
Overview and Investment Strategy

General information
Axiom European Financial Debt Fund Limited (the "Company") is an authorised closed-ended Guernsey investment company with registered number 61003. Its Ordinary Shares were admitted to the premium listing segment of the FCA's Official List and to trading on the Premium Segment of the Main Market of the London Stock Exchange (the "Premium Segment") on 15 October 2018 ("Admission") (prior to this, the Ordinary Shares traded on the Specialist Fund Segment ("SFS") of the London Stock Exchange).

Investment objective
The investment objective of the Company is to provide Shareholders with an attractive return, while limiting downside risk, through investment in the following financial institution investment instruments: · Regulatory capital instruments, being financial instruments issued by a European financial institution which constitute regulatory capital for the purposes of Basel I, Basel II or Basel III or Solvency I or Solvency II; · Other financial institution investment instruments, being financial instruments issued by a European financial institution, including without limitation senior debt, which do not constitute regulatory capital instruments; and · Derivative instruments, being CDOs, securitisations or derivatives, whether funded or unfunded, linked or referenced to regulatory capital instruments or other financial institution investment instruments.

Investment policy

The Company seeks to invest in a diversified portfolio of financial institution investment instruments. The Company focuses primarily on investing in the secondary market, although instruments have been, and may also in the future be, subscribed in the primary market where the Investment Manager, Axiom Alternative Investments SARL ("Axiom"), identifies attractive opportunities.

The Company invests its assets with the aim of spreading investment risk.

For a more detailed description of the investment policy, please see the Company's Prospectus, which is available on the Company's section of the Investment Manager's website

(http://www.axiom-ai.com/web/data/prospectus/ENG/AEFD-prospectus-UK.pdf).

Chairman's Statement

I am pleased to present our report for the year ended 31 December 2018.

Results

The Company made good progress on several fronts during what was a challenging market background in 2018. In absolute terms, investment returns were frustrating: taking into account dividends paid, the total return per share over the year net of all expenses was -8.0% (2017: +16.14%). After a recovery in the third quarter of the year, the vast majority of this loss occurred in the final quarter of 2018. I am pleased to say that most of this has been recouped in the first quarter of 2019 and up to 29 March 2019 (the latest available data at the time of writing), the total return per share net of all expenses is +6.00%.

Our Investment Manager, Axiom, gives a detailed, comprehensive report on both the markets and portfolio composition in the Investment Manager's Report of this document and on the drivers behind these results. I shall not repeat that here.

In aggregate, the Company reported a net loss after tax for the year ended 31 December 2018 of £7.1 million (2017: profit of £9.7 million), representing a loss per Ordinary Share of 8.48p (2017: earnings of 15.88p) and the Company's NAV at 31 December 2018 was £77.0 million (90.08p per Ordinary Share) (2017: £79.4 million, 104.43p per Ordinary Share).

Dividends

The Company declared four dividends each of 1.50p per Ordinary Share in relation to the year: one was declared after the balance sheet date and was paid on 22 February 2019 to Shareholders on the register at 1 February 2019. During the period, actual payments of 6.00p were made, being the May, August and November dividends of 1.50p each and the 1.50p dividend in respect of the period ended 31 December 2017 which was paid on 23 February 2018.

Transition of listing, placing programme and fundraising

We remain committed to expanding the size of the Company to improve the return economics for Shareholders by spreading the burden of the operational costs of the Company over a larger asset base and also improving trading liquidity in our shares.

During the year, notwithstanding the difficult markets, we completed two incremental placings of shares: on 13 February 2018, the Company placed a further 8,229,174 new Ordinary Shares at a price of 107.50p per new Ordinary Share, raising gross proceeds of £8.85 million. On 15 August 2018, the Company completed an additional placing of 1,223,499 new Ordinary Shares at a price of 98.50p per new Ordinary Share, raising gross proceeds of £1.21 million. On 19 October 2018, we refreshed the Placing Programme Prospectus to enable the Company to continue to expand by placing up to 500 million new Ordinary Shares at not less than the prevailing NAV (cum income) per share at the time of issue plus a premium to cover the costs and expenses of the relevant placing. After the year end, on 4 February 2019, the Company raised gross proceeds of £5.94 million from the placing of 6,400,880 new Ordinary Shares at 92.81p per new Ordinary Share. In just under a year, therefore, we have expanded the number of shares in issue by 20%.

In the 30 June 2018 interim financial statements, we outlined a proposal to transfer the listing of the Company's Ordinary Shares from the Specialist Fund Segment to the Premium Segment of the main market of the London Stock Exchange, and I am pleased to say that this transfer took place on 15 October 2018.

This move, together with the greater availability of shares in issue for trading, may make the Company's shares more accessible to some categories of investor and improve trading liquidity for all Shareholders. As the Company grows over time, we hope that it will become increasingly investable for larger institutional investors.

Outlook

2018 was very much a mixed and challenging market context with a self-fulfilling spiral of poor liquidity, open-ended fund redemptions and falls in asset prices notwithstanding that, in general, the underlying fundamentals have continued to improve. This dichotomy between fundamentals and prices offers very attractive entry points for new money and we were able to take advantage of that by issuing further shares after the year end. Listed closed-end funds are ideally suited to navigating volatile markets in general and this structure has served the Company well in 2018 and we expect it will continue to do so for many years to come. By contrast, open-ended funds are vulnerable to the flows of subscriptions and redemptions effectively forcing them to buy assets at market highs and to sell at market lows, actions which erode performance over market cycles. As a closed-ended Company, our shares may trade at a premium or at a discount to NAV per share. In recent weeks, the discount has widened slightly to 7.97% but it remains relatively low in comparison to many other funds and will present further opportunities to encourage investment in an attractive asset class at an additional discount to intrinsic value.

The investment thesis that the Company was set up to exploit, namely change in the regulatory environment applying to the capital structures of financial institutions, remains intact. Regulatory change is relentless. Indeed, the opportunity set within the AT1 asset class continues to grow as more issuers tap the markets. The Company outperformed all funds in our immediate peer group in 2017, remained in the middle of the peer group performance pack in 2018 in tough market conditions and, since the beginning of 2019, in the market recovery, performance has been impressive at 6.00% as at the time of writing, above any other fund in the asset class.

We and our Investment Manager, Axiom, therefore remain positive and continue to believe the Company is well positioned to capture the value inherent in the sector.

William Scott

Chairman

3 April 2019

Investment Manager's Report

1- Market developments
In January, subordinated financials started on a very strong tone despite new MiFID 2 rules impacting trading conditions. In a context of rates steadily increasing on the back of the "broadest synchronised global growth upsurge since 2010" as observed by IMF's Christine Lagarde on her way to Davos, banks were in strong demand and investors kept searching for yield with limited duration. Additional Tier 1s ("AT1s") rallied strongly in the first three weeks followed by legacy instruments, floaters in particular. On Non-Performing Loans ("NPLs"), the ECB pressure found some positive response in Italy with banks such as Intesa, UBI and Banco BPM raising their targeted NPL sales. The start of the quarter 4 earnings season was more mixed with poor performance in Investment Banking (UBS), the impact of one-offs (like IFRS 9) and provisions from specific corporates: Carillion for UK banks or Duro Felguera in Spain (Santander). Still, capital ratios remained stable overall and asset quality continued to improve. Consolidation remained a wishful thought from regulators as the Unicredit CEO dismissed it and Arkéa confirmed its plan to exit Crédit Mutuel. In restructurings, NordLB confirmed it would keep Deutsche Hypo and Cerberus, together with JC Flowers, were selected as bidders for HSH Nordbank. Three new AT1s were issued by RBI, UBS and Belfius. Monte Paschi and IKB issued a Tier 2 ("T2"), while BFCM, Santander, Unicredit, SocGen and BPCE issued new Non-Preferred Seniors. Santander UK called the rump of its 6.984 Perp step-up, and Intesa launched a tender on government guaranteed senior bonds. In ratings, we would highlight the upgrade of RBS's ring-fenced entity at Moody's, and the positive outlook of Unicredit.

In February, subordinated financials saw a negative trend in valuations driven by investor concerns towards rate increases, Italian elections, the formation of a government in Germany and a lack of progress in the Brexit negotiations. Still, the quarter 4 earnings season showed some fundamental improvements: annual profits for RBS; resumption of dividends for RBI, StanChart and Bank of Ireland; mitigation of IFRS 9; and Basel IV impacts. An emerging theme was capital return and some, like Lloyds and Barclays, discussed share buybacks. Intesa, Sabadell and Bankia presented their strategic plans and others, like Mediobanca and Banco BPM, received the approval of their internal capital model, confirming the trend towards regulatory forbearance. The EBA stress tests were announced for November but were not expected to bring any surprises. Lastly, the EIOPA released a report that provided enough clarity for insurers to contemplate new RT1 issues. In corporate actions: the sale of HSH was announced within the deadline set by the EC; Credito Valtellinese launched its highly dilutive capital raise; and Provident announced a rights issue. In addition, Credit Mutuel Arkea was leading an initiative to split from its parent, and Vivat's shareholder was facing governance issues in China. On the IPO front, NIBC was about to launch and Deutsche Bank was selling down its asset management unit (DWS). Rating actions were mixed: Barclays and HSBC Bank were on review for downgrade for the impact of ringfencing and Caixa Geral in Portugal was upgraded to Ba3. Unipol and BNP issued T2s and Scor announced an insurance RT1 deal. Lastly, Nordea announced the call of its EUR CMS, a situation we had followed since November.

In March, European financials had a negative month in sympathy with the rest of the markets, while outflows accelerated in High Yield funds (EUR18 billion since the beginning of the year). European long-term rates fell in fear of a new trade war, while concerns rose about the pace of tightening led by the Fed. On a positive note, Spain's rating was upgraded to A- by S&P for the rebound of its economy.

European authorities published their proposals on NPLs. Draghi widened the debate to Level 3 on hard-to-value assets, diverting the attention away from the Italian sector. Still, BPER launched its NPL securitisation, Banco BPM announced it could dispose more and UBI Banca got its NPL reduction plan approved. Litigation risk resurfaced with RBS and SocGen indicating they were within weeks of settling with the US on mortgages and US sanctions respectively. Deutsche Bank successfully completed the IPO of its asset management but communicated poorly about its performance this year so far. Barclays got the approval of its ringfencing plans and Credito Valtellinese successfully completed its IPO. Consolidation continued. 15 bidders were interested in Banco Caixa Geral in Spain. Bankia considered itself a perfect fit for a would-be acquirer and, in Italy, Credito Emiliano was ready for acquisitions. In insurance, Axa surprised the consensus by announcing a transformational acquisition of XL and Prudential announced a demerger of their European asset management M&G. Aviva also moved aggressively against its preference share investor base by threatening a repayment at nominal value. After unprecedented political and investor pressure, management backtracked but the broader UK preference share market had been rattled. MACIF announced the call of its floater perp, BBVA and CS the call of their first AT1s. Santander, Unicaja Banco and Caixabank each issued AT1s but it was HSBC and Axa who repriced down the market with generous pricing terms in their new issues.

In April, European financials had a constructive month after geopolitical tensions eased around Syria, and Brexit softened towards a bespoke customs union, which offset the impact from US rate increases. Ratings were upgraded for Spanish banks and other issuers like SocGen or de Volksbank in the Netherlands. NPL derisking continued to be a priority for lawmakers in Europe, especially in Germany, and banks in Italy: Intesa announced a large disposal of its NPLs with Intrum. The earnings season started rather well with strong results in IB equities for Barclays and UBS, and in UK retail banking for Lloyds and RBS. On governance, we would note the management changes at SocGen, Natixis, BPCE and more importantly Deutsche Bank, where the IB would be rightsized and the franchise refocused on Germany. Credit Mutuel Arkéa in France went against the flow of bank consolidation - a wishful thinking by European regulators - by voting for the separation from its central body, to the unprecedented risk of seeing its management dismissed. New AT1s were issued by SocGen, Pfandbriefbank, KBC and Bawag. Phoenix issued a new RT1, while Aegon, Leeds, Quilter and Caixabank issued new T2s. In calls, UBS confirmed the call of its USD 4.75 low trigger coco issued in 2013, DB called its 8% Fixed-to-fixed and Aegon announced it would call its legacy instruments by 2026. Last but not least, investors in Aviva preference shares would receive a compensation if they sold their position on the back of the contentious comments by the CEO last month.

During May, European financials went through a severe correction and a flight to quality due to the newly formed populist Italian government, the change of prime minister in Spain, the lack of progress on Brexit preparations in the UK and concerns about the Turkish economy.

Quarter 1 results were resilient as banks reported an improvement in asset quality and stable costs, offsetting a slowdown in revenues. More positively, RBS confirmed the resolution of its litigation on US RMBS and SocGen announced that it was near a settlement on LIBOR and Libya transactions. Deutsche Bank completed its integration with Postbank but was downgraded one notch by S&P. On the regulatory front, the EU released a new proposal for CRR2 with some new grandfathering provisions towards 2024 for non-EU instruments in line with the draft from March. This new context prompted HSBC to requalify some legacy T2 instruments. The extension risk led to a market wide repricing of the disco instruments. Unicredit had also been challenged by an investor with respect to the recognition of its Cashes (equity-linked instruments) as regulatory capital. Issuers continued to call their legacy perpetuals: HSBC 8% and 8.125%, Aegon 6%, BNP 7.781% and DB 8% Fixed-to-fixed, and Intesa 8.047% step-up.

The subordinated debt market experienced much volatility in June amid a fickle political environment: the EU cohesion and the German coalition both threatened by migration policies, the lack of significant progress on Brexit and the elections in Turkey. Despite all this the ECB aimed to reassure with its decision to keep interest rates unchanged until at least the end of summer 2019. The Itraxx Sub Fin Index tightened slightly and ended the month at 180 bps (compared to 205 bps at the end of May). All bar one of the 35 establishments tracked by the FED passed the US stress tests (results as at 21 June). Only the American subsidiary of Deutsche Bank failed. This was a warning that should have resulted in an acceleration of the restructuring already initiated by the bank. On the regulatory front, several recent changes were a source of new opportunities for our strategies. The European Parliament published its CRR2/BRR2 bill at the end of June, which followed the European Council's bill published at the end of May. There were divergent views on the existence of a transitional period for instruments issued by non-EU member states. Both bodies must now agree on the final CRR2/BRR2 text by the end of the year. The Bank of England published its latest rules on MREL which go against HSBC's decision to requalify some of the Legacy instruments into T2, pushing up the prices of some "Discos". Capital transactions continued despite market volatility with Standard Chartered, Bawag and even Novo Banco launching buybacks or exchange offers on their legacy instruments.

Financial securities experienced a more stable market in July. The Itraxx Sub Fin Index continued to tighten ending the month at 155 bps (vs. 180 bps at the end of June). The prospect of a "Soft Brexit" after the departure of two ministers from Theresa May's government, and the strong earnings supported the market. Credit Suisse and UBS stood out for their strong quarterly performance and the Irish banks benefited from an improvement in their asset quality. Only Sabadell disappointed with a CET1 ratio down by 1% driven by the EUR177 million write-down of non-performing assets being sold and the costs related to the IT integration of TSB. Several rating upgrades took place with RBS T2 bonds moving to Investment Grade rating (Baa3 at Moody's), BFCM Non-Preferred Senior Securities (A+ at Fitch) and KBC (A at S&P). Consolidation continued in the financial sector: acquisition of the Belgian private bank of Société Générale by ABN Amro and the Italian bank Carige, under pressure from the ECB to find a buyer. In the Netherlands, the government announced the removal of the deductibility of the interest charges for the new regulatory debt formats (AT1 and RT1) from January 2019. The issuers (Rabobank, ABN and Vivat) promptly declared that they would not exercise the tax call options on their securities. Finally, the EBA issued its official response confirming there were no clear grounds to believe that the ECB had failed to carry out its supervisory responsibilities with regards to the eligibility as regulatory capital of the so-called "UniCredit Cashes" bonds. The row was triggered by an English hedge fund and led to a sharp decline in the instrument price.

The primary market was active with the AT1 issued by Credit Suisse (USD2 billion) with a generous coupon of 7.5%.

August proved a volatile month for financial securities due to political uncertainty. The Itraxx Sub Fin Index however widened back to its June level at 180 bps. Italy was working on its budget proposal which was to be finalized by mid-October. The draft should have outlined the actions needed to reduce the Italian deficit over the next two years. In Turkey, policymakers' actions provided some short-term stability for the Lira. The markets were eagerly waiting for a concrete action plan which was to coincide with the new medium-term economic programme due by mid-September. In the UK, 80% of the Brexit agreement had been negotiated and the possibility of a soft Brexit was gaining ground. With the release of the latest earnings results, we considered that the second quarter was predominantly positive given the strong NII and asset quality trajectories triggering EPS and DPS revisions. Moody's also upgraded the credit ratings for Caixabank and Commerzbank. With regards to NPLs, the European Commission approved the prolongation of the Italian guarantee scheme (GACS) to secure NPLs until 7 March 2019. Irish banks were making important progress on the gradual rundown of their inventory. Consolidation continued in the financial sector. Press articles started giving substance to the mergers between Deutsche Bank and Commerzbank and between SocGen and UniCredit. In France we should mention the merger of CNP Assurances (leader in life insurance) and La Banque Postale (7th largest mortgage lender). Credit Suisse redeemed its strategic cocos (9.5% coupon) and, rather surprisingly, Barclays and BNP came to the AT1 market. The deals were oversubscribed several times, which was evidence of the risk appetite and the important amount of cash available.

In September, financials performed well despite a heavy political agenda. While negotiations between the EU and the UK continued to stagnate, especially around the Irish border issue, eyes turned to Italy's 2019 budget. The coalition finally agreed a deficit target of 2.4% of GDP, higher than the request from the Finance Minister, but that was enough for the market to rally. Mr Draghi's comments on a "relatively vigorous" rebound in Eurozone inflation, expected to be 1.7% by 2020, had an impact on interest rates, which rose sharply. In the banking sector, the EU Single Supervisor indicated that consolidation was needed for EU banks' profitability. Headlines continued to mention the mergers between UniCredit and Société Générale, and between Deutsche Bank and Commerzbank. On the former, CEO Mustier reiterated that UniCredit was focused on organic growth. On the latter, the Deutsche Bank CEO played down the talk of a possible merger but the German government was quoted as open to the idea. On conduct issues, Danske Bank was embroiled in a serious money laundering probe involving its Estonian subsidiary while ING settled its own case with a EUR750 million fine. Balance sheet clean-ups continued with UniCredit, BPER, BBVA, Bankia and Novo Banco all preparing new disposals. The primary market was active this month. BBVA, Bankia, SocGen, Rabobank, Credit Suisse and HSBC took advantage of the positive market direction to issue AT1 bonds. In the secondary market, Nordea, BCP and Caixa Geral called their discounted perps while Standard Life Assurance announced its tender on its legacy insurance-guaranteed bonds.

Financial stocks fell sharply in October, in line with the rest of the market. From a macroeconomic standpoint, elements of concern remained the same: political situation in Italy, complicated negotiations around Brexit and evolution of central banks' monetary policies. In this context, the Itraxx Sub Fin Index ended the month at 190 bps, a widening of 15 bps over the month, relatively low in comparison with financials' equities.

In Italy, the European Commission rejected the budget plan and asked the government to submit a new one. As expected, Moody's downgraded Italy's rating one notch, ranking the country just above High Yield. However, Moody's maintained a stable outlook, which contained the spread widening. In Spain, the banks were impacted by the Supreme Court deliberations on tax imposed on mortgages and the risk of retroactivity. Banks' quarterly earnings confirmed the improvement of fundamentals. Strong updates came from HSBC and UBS as well as Credit Suisse's private bank. Spanish banks' results came above consensus with Santander beating its 11% CET1 end-of-year target ratio. Among the Nordics, SEB stood out with a strong quarter. S&P upgraded Crédit Agricole's long-term rating which led to an upgrade of the bank's AT1 rating to Investment Grade. The stock of NPLs continued to decrease in Italy according to the quarter 2 data published by the Bank of Italy, with Banco BPM and UBI making solid progress. With regards to regulation, banks continued recycling their subordinated bonds by calling grandfathered instruments despite the market conditions and the upcoming stress tests. Barclays also called their USD prefs and, for the first time, a legacy instrument was called at its make-whole price (above 150!) and it came from Santander UK on its 8.963 Perp-30.

In November, the uncertainties around Brexit and the iterations of the Italian budget continued to weigh on market sentiment. The UK parliament struggled to unite behind Theresa May's Withdrawal deal, ahead of the meaningful vote scheduled for 11 December. The Italian government was still postponing its new budget target despite the threat of an excessive deficit procedure considered by the European Commission. Mid-November marked the end of a decent earnings season, slightly above expectations. Note the strong results of Commerzbank and Société Générale and the substantial improvement in profits at ABN, UBI, Intesa and Crédit Agricole. As for Spanish banks, the revised decision of the Supreme Court on transfer duties for mortgages came in their favour. More importantly for the sector, the EBA and BoE 2018 stress tests confirmed the continued improvement in banking fundamentals and the banks' increased resilience to the most severe stress scenarios ever considered in Europe. Three UK banks eventually proceeded with returning capital: Standard Chartered for shareholders, Barclays and RBS for subordinated bondholders. The regulatory catalyst was more relevant than ever as shown by the ongoing calls of grandfathered instruments: two months after Barclays, RBS called back five legacy instruments. Deutsche Bank, despite being exposed in further headlines, launched a tender for two senior instruments. The primary market remained tight with a limited number of new issues. UniCredit issued a non-preferred senior via a USD3 billion private placement at a spread level almost equivalent to one of their last AT1s issued a year ago, while Sabadell issued a T2 instrument at 510 bp, the highest historical level in two years.

The month of December ended a challenging year shaped by increased political and economic fear: Brexit, Italy, US trade war with China and falling oil prices. Investors' perception gradually deteriorated, and a risk-off sentiment finally materialized at the end of the year. As expected, at the end of December, the ECB decided to place Banca Carige under supervision and temporary administrators were appointed. The bank had to carry out a capital increase or find a buyer before the end of 2018.

Regardless of difficult market conditions, 2018 saw a number of calls of non-eligible debt instruments continuously throughout the year: Barclays, RBS, Nordea, AXA, BPCE and tentatively Santander, Aegon, etc.

2- Investment Objective and Strategy
The Company is a closed-ended fund investing in liabilities issued by European financial institutions, predominantly legacy Tier 1s ("T1s"), T2s, and AT1s across five sub-strategies: · Liquid Relative Value: instruments issued by large and strong quality institutions, with significant liquidity. These can be purchased on either primary or secondary markets. · Less Liquid Relative Value: instruments issued by large and strong quality institutions, with limited liquidity due to past tenders or complex features (secondary market). · Restructuring: instruments issued by institutions in preparation or implementation of a restructuring process (secondary market). · Special Situations: instruments issued by entities in run-off, under a merger process or split between several entities (secondary market). · Midcap Origination: instruments issued by small institutions or small subsidiaries of larger institutions (primary market).

3- Company activity
January
In Liquid Relative Value, the Company increased its exposure to the AT1 segment in the early part of the month but refrained from taking part to the new issues as valuations got stretched. In Less Liquid Relative Value, the Company selectively added on some defensive carry positions such as Fixed-to-fixed bonds from BNP Paribas and Rabobank's insurer. The Company held a small position in the Santander UK bond being called. In Special Situations, the Company added a perpetual ex-convertible hybrid issued by the Belgian insurer Ageas with a floating rate coupon at a significant discount. After the strong appreciation, some positions on CMS-linked perpetuals were reduced. In Restructuring, the Company took part in the new T2 issued by IKB, reduced its exposure to legacy T1s issued by another German lender (bought at 47.00, sold at 52.00) and sold its legacy T1 issued by a Greek bank (bought at 29.00, sold at 56.50). The Company also increased its rate hedges in order to cushion the price impact on its longer-duration positions.

February
The Company increased its size by 11% following a successful fifth placing on 13 February and deployed its new capital as follows: · Liquid Relative Value: it bought two defensive AT1s that underperformed in the correction (CS 7.5 and BNP 7.375). It also benefited from the appreciation of its Vivat T2 position as the issues impacting its shareholder made it an acquisition target, and sold the Nordea called bond above par (1% bought at 91 in November). · Less Liquid Relative Value: it continued to add carry positions in Fixed-to-fixed bonds from the largest UK banks, insurance and building societies and a Dutch insurer. It took profit on its Crédit Logement hybrid. · Special Situation: it increased its exposure to an equity-linked hybrid issued by a French bank and a discounted Perp issued by HSBC, while reducing its exposure to French CMS. · Restructuring: it sold its Valtellinese bond at 105 (bought at 84 in January), reduced its exposure to HSH hybrids above 60 (bought at 52) and bought a small hybrid issued by a Portuguese bank. · Midcap Origination: it increased its holding in an illiquid issue from a Spanish mutual.

March
The Company traded the market context with a defensive approach by proceeding to selective switches of positions. · Liquid Relative Value: the Company sold its holdings in Vivat and Santander 5.25 AT1 and, to capture the new issue premia, took part in the new AT1s by Santander and Caixabank, the new Scor RT1 and the new Axa T2. · Less Liquid Relative Value: at the time of Aviva's warning for a redemption of its preference shares at nominal value, the Company had a marginal exposure of 0.40% only and, after reducing slightly its overall exposure, it opportunistically increased its holding on Ecclesiastical as well as on preferred shares issued by an Opco within RBS group. These securities have more protective language because the bylaws prevent ordinary shareholders from diluting the vote of preferential shareholders. It also tactically added on some Aviva preference shares at discounted levels. · Special Situations: the Company added on Standard Life which, following the sale of its insurance business to Phoenix, should see the guarantee of its bonds trigger a tender. · Restructuring: the Company reduced further its holding in NDB and added on HSH Nordbank. · Midcap Origination: finally, the Company invested in the new Ibercaja AT1.

April
The Company continued to trade with selective switches of positions. · Liquid Relative Value: the Company reduced its holdings in insurance RT1s (Direct Line and Scor) and bank AT1s (Nordea, Credit Suisse, Baer and Virgin Money) that had held well and invested into the new KBC and Bawag AT1s. · Less Liquid Relative Value: the Company reduced its holdings in Prudential Fixed-to-fixed, and added on RBS and Lloyds preference shares. · Special Situations: the Company added on discounted Perps issued by Aegon. · Restructuring: the Company sold its holdings in NDB following the reinstatement of coupons. · Midcap Origination: the Company invested in Quilter and Leeds new issues and increased its holding in the Spanish mutual Caser.

May
In the correction, the Company remained underweight on Italian bonds and covered its shorts on SocGen discos and Bankinter AT1s. More specifically: · Liquid Relative Value: the Company sold its remaining position on Virgin Money AT1s after CYBG was confirmed as a potential acquirer. It also sold its holdings in USD Fixed-to-fixed BNPs given the cost of hedging back into GBP. · Less Liquid Relative Value: the Company reduced its holdings in Aviva and Ecclesiastical preference shares after the recent rebound, reduced its exposure to UK discos (HSBC and Barclays) and sourced a rare T1 step-up issued by Banco BPM in Italy. · Special Situations: the Company sold its residual position on Unicredit Cashes around 65.00. · Restructuring: the Company started a position on IPF and added on Caixa Geral legacy step-ups. · Midcap Origination: the Company sold Quilter's recent issue and took part in new issues: Provident GBP 7% Senior, Oaknorth Bank GBP 7.75%, Sydbank EUR 5.25% AT1, and added on PTSB AT1s.

June
Overall, the Company added risk selectively throughout the month: · Liquid Relative Value: the Company initially sold its Lloyds AT1 and then took part in the new insurance RT1 deals from CNP and Vivat. It later sold its Vivat position on M&A speculation more than 3pts above the new issue price. · Less Liquid Relative Value: the Company reduced its holding in RBS 5.25% and CMZB 8.151% in USD, for its hedging cost and lower likelihood of take-out, and added on BBVA's subsidiary in Turkey. · Special Situations: benefiting from the opportunities brought by the BoE MREL update, the Company added some Legacy bonds issued by ring-fenced retail entities, towards a call or tender by 2021. The Company increased its holding of a rare Caixa Geral legacy which could be called anytime following the issuance of T2. The Company invested in a Prudential long dated bond with an attractive make-whole call. · Restructuring: the Company reduced its UK exposure by selling its Co-Operative Bank equity and bought some Monte T2 bonds at the lows. · Midcap Origination: the Company sold its remaining position in Provident seniors at a gain and invested in T2s issued by Metro Bank in the UK and a regional bank in Denmark.

July
The Company reduced its risk into the rally and proceeded to some defensive switches: · Liquid Relative Value: the Company sold some recently issued AT1s/RT1s (RBI, CNP, KBC) to reduce its extension risk and also reduced its Sabadell and Bankia AT1s to reduce the beta. · Less Liquid Relative Value: the Company bought some Rabobank certificates to monetise the drop that followed the Dutch government's announcement on the removal of the tax deductibility. · Special Situations: the Company sold a small position on its Fortis Cashes holding. · Restructuring: the Company invested in a senior bond issued in GBP by TP Icap with a yield close to 5.5% for a 2024 maturity. This leader in financial brokerage saw its share price lose 30% on the back of its disappointing results and the departure of its CEO. We expected the group to be in a capacity to overcome its challenges coming from the merger initiated in 2016 between two leaders of this oligopoly-style sector. · Midcap Origination: the Company sold a small portion of its OAKNBK holding to maintain some velocity in the bucket and contain the exposure to the UK ahead of the final Brexit negotiations at a gain and invested in T2s issued by Metro Bank in the UK and a regional bank in Denmark.

August
In this challenging environment for liquidity, the Company proceeded to some selective arbitrages: · Liquid Relative Value: the Company invested in a T2 issued by a Spanish local bank with improving credit fundamentals. · Less Liquid Relative Value: the Company sold its Rabobank certificates after the rebound and took a short position on T1 legacy instrument with a high cash price and a regulatory call at par. It added on a T2 position issued by BBVA's subsidiary in Turkey. This position amounted to 1.0% of NAV. · Special Situations: the Company added on some discounted bonds issued by Lloyds Bank's retail entity. · Restructuring and Midcap Origination: the Company did not have any trading activity but continued to monitor actively the opportunities, in particular the issuance pipeline of small and medium-sized financial institutions.

September
In these supportive market conditions, the Company reduced its risk overall: · Liquid Relative Value: the Company invested in a defensive RT1 issued by a UK insurance specialist and initiated a short on an overpriced Dutch RT1. · Less Liquid Relative Value: the Company sold its holding in Santander 2% legacy bonds at a 9% annualised gain since its purchase last year. · Special Situations: the Company added on its Standard Life instruments - which eventually got subject to tender. · Restructuring: the Company reduced its holding in BBVA's subsidiary in Turkey after the rebound, and added some Tier 3 ("T3") instruments from a UK insurance specialist whose capital model was subject to a consultation by the regulator. While it did not have any exposure before, the Company sold protection on Danske Bank CDS in absence of bonds in this defensive part of the capital structure. · Midcap Origination: the Company reduced its holding in a small Danish retail bank and added on Permanent TSB and a new high yield bond issued by a credit management platform in France.

October
In these adverse conditions, the Company added risk marginally. · Liquid Relative Value: the Company invested on liquid AT1s issued by large issuers (3.8%) to capture the rebound, while keeping its short positions on two Dutch AT1s subject to the risk of par call. · Special Situations: the Company capitalised on the difficult liquidity conditions to add on a discounted bond issued by a UK ring-fencing entity. · Restructuring: the Company added on two T2s from Italian banks at historically low levels.

November
As the adverse market conditions showed no signs of abating, the Company realised some positions and added risk marginally. · Restructuring: the Company sold its BCP bond that had just been called. · Special Situations: the Company sold a legacy Perp issued by Aegon whose call had passed and a marginal position on Standard Life Aberdeen where no further catalyst was expected in the short-term. · Less Liquid Relative Value: the Company switched into a long call bond issued by the operating entity of HSBC, whose credit profile would be barely impacted by a hard Brexit scenario. · Liquid Relative Value: the Company covered its shorts on the two Dutch AT1s.

December
As the market conditions deteriorated further towards the turn of the year, the Company traded carefully and did not add any risk. · Liquid Relative Value: the Company initiated a short in an AT1 that may skip its first call date over the next 12 months. · Restructuring: the Company sold its remaining holding in BBVA's subsidiary in Turkey at a gain. · Midcap Origination: the Company sold its residual position on a Danish AT1 at a gain to generate capacity for future issuance.

4- Portfolio (as at 31 December 2018)
Strategy allocation (as a % of investments held)
Liquid Relative Value	17.0%
Less Liquid Relative Value	28.4%
Restructuring	15.6%
Special Situations	16.0%
Midcap Origination	21.1%
Cash	2.0%

Denomination (as a % of investments held)
EUR	58.9%
GBP	28.3%
USD	11.8%
DKK	1.0%

Portfolio Breakdown (as a % of investments held)
By rating		By country
A	5.6%	UK	30%
BBB	33.5%	France	14%
BB	37.0%	Spain	13%
B	16.8%	Netherlands	9%
CCC and below	6.3%	Italy	9%
NR (Equity)	0.7%	Portugal	8%
		Germany	6%
By maturity		Denmark	4%
<1 year	4.7%	Ireland	3%
1-3	24.6%	Jersey	2%
3-5	37.1%	Belgium	2%
5-7	15.3%	Austria	1%
7-10	9.3%
>10	9.1%
NR (Equity)	0.7%

By subordination
Additional Tier 1	30.0%
Legacy Tier 1	45.0%
Tier 2	22.3%
Senior	2.1%
Equity	0.7%

5- Company metrics (as at 31 December 2018)
Share price and NAV		Portfolio information
Share price (mid) (GB pence)	88.00	Modified duration	1.63
NAV per share (daily) (GB pence)	90.08	Sensitivity to credit	7.76
Dividends paid over last 12 months (GB pence)	6.00	Positions	91
Shares in issue	85,452,024	Average price	95.40
Market capitalisation (GBP mn)	75.198	Running yield	7.52%
Total net assets (GBP mn)	76.976	Yield to perpetuity*	8.12%
Premium/(Discount)	(2.3)%	Yield to call*	10.06%

Net Return
1 month	3 months	6 months	1 year	3 years	Since launch*
-1.43%	-5.53%	-2.88%	-8.00%	N/A	2.69%

Monthly performance
	Jan %	Feb %	Mar %	Apr %	May %	Jun %	Jul %	Aug %	Sep %	Oct %	Nov %	Dec %	Annual %
2015											0.19	-1.48	-1.29
2016	-4.02	-4.59	3.57	1.16	2.62	-1.97	2.83	1.69	-0.21	2.06	-1.60	1.91	2.92
2017	2.67	0.93	1.12	2.01	1.72	-1.41	1.86	0.58	1.76	2.72	1.31	2.92	16.14
2018	3.12	-0.70	-1.95	1.14	-5.84	-1.14	1.60	-1.26	2.43	-1.54	-2.68	-1.44	-8.00

*The yield to perpetuity is the yield of the portfolio with the hypothesis that securities are not reimbursed and kept to perpetuity. The yield to call is the yield of the portfolio at the anticipated reimbursement date of the bonds. Past performance does not guarantee future results. Annualized performance since inception of the unit.

6- NAV evolution
Date	NAV	Share price (mid)	NAV + dividends	Share price (mid) + dividends
05/11/2015	97.97	101.50	97.97	101.50
27/11/2015	98.19	101.50	98.19	101.50
31/12/2015	96.74	101.50	96.74	101.50
29/01/2016	92.85	101.50	92.85	101.50
26/02/2016	88.24	101.25	88.59	101.60
24/03/2016	91.39	96.50	91.74	96.85
29/04/2016	92.45	96.50	92.80	96.85
27/05/2016	93.87	95.50	95.22	96.85
30/06/2016	92.02	95.50	93.37	96.85
29/07/2016	94.62	93.50	95.97	94.85
26/08/2016	94.72	94.50	97.57	97.35
30/09/2016	94.52	95.50	97.37	98.35
28/10/2016	96.47	95.50	99.32	98.35
25/11/2016	93.43	93.50	97.78	97.85
31/12/2016	95.21	92.50	99.56	96.85
31/01/2017	97.75	92.50	102.10	96.85
28/02/2017	97.01	95.00	103.01	101.00
31/03/2017	98.10	100.50	104.10	106.50
28/04/2017	100.07	99.50	106.07	105.50
31/05/2017	100.29	101.50	107.79	109.00
30/06/2017	98.88	97.50	106.38	105.00
31/07/2017	100.72	97.50	108.22	105.00
31/08/2017	99.80	96.00	108.80	105.00
29/09/2017	101.56	98.00	110.56	107.00
31/10/2017	104.32	98.25	113.32	107.25
30/11/2017	104.19	102.50	114.69	113.00
31/12/2017	104.43	105.25	114.93	115.75
31/01/2018	107.69	108.50	118.19	119.00
28/02/2018	105.44	107.00	117.44	119.00
29/03/2018	103.38	106.00	115.38	118.00
30/04/2018	104.56	105.50	116.56	117.50
31/05/2018	96.95	102.50	110.45	116.00
30/06/2018	95.84	102.50	109.34	116.00
31/07/2018	97.37	102.00	110.87	115.50
31/08/2018	94.64	98.75	109.64	113.75
28/09/2018	96.94	97.00	111.94	112.00
31/10/2018	95.45	94.00	110.45	109.00
30/11/2018	91.39	93.00	107.89	109.50
31/12/2018	90.08	88.00	106.58	104.50

7- Outlook

The market was struck by a lack of liquidity at the end of 2018. Financials led the rise at the beginning of the year despite the persisting economic concerns (Brexit, the recession in Italy, the trade war between China and the United States) offset by the relatively dovish tone of the ECB.

Over the year, the spreads of subordinated debt have widened from 104 bps to 227 bps. We believe the decline in financial valuations is not justified given the strong fundamentals. The latter have not stopped improving since the crisis (average capital level significantly increased to 14.70% in September 2018, four times as much as in 2007) and we have seen a number of favourable developments throughout the year confirming the continuous normalisation of European bank balance sheets: ongoing improvement in credit metrics alongside a steady reduction in stocks of non-performing bank loans (average NPL ratio down to 3.4% in September 2018), strong quarterly results, sustained momentum in credit rating upgrades, and stress tests passed with success on historically severe assumptions. Only Italian banks remain under close surveillance.

We believe this dichotomy between fundamentals and valuations offers very attractive entry points: the underlying credit quality has not changed, and prices should recover as soon as the negative sentiment reverses.

Finally, on the regulatory side, the latest updates in the Banking Package (CRD5 / CRR2 / BRRD2 / SRMR) brought more visibility while confirming the potential performance of our legacy strategies. The implementation of MREL continues to provide an attractive set of investment opportunities within the asset class and we see the regulatory catalyst as relevant as ever.

For the above reasons, we remain constructive and continue to believe the Company is well positioned in capturing the value of the sector.

Gildas Surry

Axiom Alternative Investments SARL

3 April 2019

Investment Portfolio as at 31 December 2018

		£'000	% of NAV
Investments in capital instruments at fair value through profit or loss
Bonds
Achmea BV 6.000% Perp		5,114	6.64
BNP Paribas SA 4.875% Perp		4,973	6.46
Shawbrook Group PLC 7.875% Perp		4,465	5.80
Caja de Seguras Reunidos Cia de Seguros y Reaseguros SA 8.000% 02/17/26		2,560	3.33
Caixa Geral de Depositos Finance 1.461% Perp		2,509	3.26
BNP Paribas Fortis SA 1.689% Perp		2,390	3.10
HBOS Capital Funding LP 6.850% Perp		2,346	3.05
Banco BPM SPA 9.000% Perp		2,097	2.72
OneSavings Bank PLC 9.125% 05/25/22		2,007	2.61
Saxo Bank 9.750% Perp		1,700	2.21
Hongkong & Shanghai Banking Corporation 2.750% Perp		1,691	2.20
Banco Comercial Portugues SA 4.500% 12/07/27		1,663	2.16
NIBC Bank NV 6.000% Perp		1,544	2.01
National Westminster Bank 2.813% Perp		1,500	1.95
Credito Valtellinese SPA 4.700% 08/04/21		1,464	1.90
UniCredit SpA 6.625% Perp		1,400	1.82
Oaknorth Bank PLC 7.750% 06/01/28		1,287	1.67
Ageasfinlux SA 1.032% Perp		1,279	1.66
Banco Santander SA 1.285% Perp		1,229	1.60
Caixa Sabadell Preferentes SA 1.632% Perp		1,198	1.56
Societa Cattolica di Assicurazioni SC 4.250% 12/14/47		1,177	1.53
Ibercaja Banco, SA 7.000% Perp		1,149	1.49
Rothesay Life PLC 6.875% Perp		1,137	1.48
Permanent TSB PLC 8.625% Perp		1,106	1.44
Bawag Group AG 5.000% Perp		976	1.27
HSH N Funding II Via Banque de Luxembourg 7.250% Perp		970	1.26
Skipton Building Society 12.875% Perp		927	1.20
ASR Nederland NV 4.625% Perp		917	1.19
GNB Cia de Seguros de Vida SA 1.889% 12/19/22		914	1.19
Louvre Bidco SAS 5.375% 09/30/24		899	1.17
Metro Bank PLC 5.500% 06/26/28		892	1.16
Sparekassen Sjaelland-Fyn AS 4.500% 06/26/28		856	1.11
Liberbank SA 6.875% 03/14/27		841	1.09
International Personal Finance PLC 5.750% 04/07/21		840	1.09
Banco de Sabadell SA 6.125% Perp		813	1.06
Banco Santander SA 5.250% Perp		799	1.04
BNP Paribas 7.375% Perp		784	1.02
Caixabank SA 5.250% Perp		765	0.99
Deutsche Postbank Funding Trust I 0.915% Perp		741	0.96
Caixa Economica Montepio Geral 5.000% Perp		724	0.94
Deutsche Bank AG 7.125% Perp		720	0.93
Banco Santander SA 4.750% Perp		716	0.93
Novo Banco SA 8.500% 07/06/28		711	0.92
UniCredit SPA 8.000% Perp		699	0.91
IKB Deutsche Industriebk 4.000% 01/31/28		685	0.89
Deutsche Bank AG 6.000% Perp		662	0.86
Bank of Ireland 13.375% Perp		657	0.85
HSB Group Inc 2.632% 07/15/27		639	0.83
HSBC Bank Capital Funding LP 5.844% Perp		607	0.79
Deutsche Bank Capital Finance Trust I 1.750% Perp		597	0.78
Banco de Credito Social Cooperativo SA 7.750% 06/07/22		559	0.73
Sainsbury's Bank PLC 6.000% 11/23/27		493	0.64
GNB Cia de Seguros de Vida SA 3.189% Perp		476	0.62
TP ICAP PLC 5.250% 01/26/24		468	0.61
Just Group PLC 3.500% 02/07/25		462	0.60
Lloyds Bank PLC 3.188% Perp		435	0.56
Banca Monte dei Paschi SPA 5.375% 01/18/28		425	0.55
Newcastle Building Society 12.625% Perp		400	0.52
Standard Life Aberdeen 5.500% 12/04/42		384	0.50
Newcastle Building Society 10.750% Perp		362	0.47
Bank of Scotland PLC 9.375% Perp		353	0.46
Coventry Building Society 12.125% Perp		347	0.45
Leeds Building Society 3.750% 04/25/29		321	0.42
Prudential PLC 6.125% 12/19/31		288	0.37
HSBC Bank PLC 3.126% Perp		268	0.35
Leeds Building Society 13.375% Perp		252	0.33
Santander UK PLC 6.222% Perp		225	0.29
Bank of Scotland PLC 13.625% Perp		215	0.28
DZ Bank Perpetual Funding Issuer Jersey Ltd 0.182% Perp		198	0.26
BA-CA Finance Cayman 2 Ltd 1.178% Perp		195	0.25
BA-CA Finance Cayman Ltd 1.070% Perp		189	0.25
Aegon NV 1.506% Perp		155	0.20
HSBC Bank PLC 2.844% Perp		155	0.20
Deutsche Postbank Funding Trust III 1.067% Perp		148	0.19
IKB Funding Trust I 1.191% Perp		79	0.10
Lloyds Bank PLC 2.628% Perp		71	0.09
Ulster Bank Ireland DAC 11.750% Perp		67	0.09
National Westminster Bank 11.500% Perp		51	0.07
Banco Popular Espanol SA 8.000% 07/29/21		51	0.07
Banco Pinto & Sotto Mayor, SA 1.146% Perp		46	0.06
Banco Popular Espanol SA 8.250% 10/19/21		10	0.01
Popular Capital SA 6.000% Perp		-	0.00
Popular Capital SA Perp		-	0.00
		------------	------------
		77,484	100.67
Other capital instruments
Ecclesiastical Insurance Group PLC 8.625% Perp		1,565	2.03
Lloyds Banking Group PLC 9.250% Perp		1,068	1.39
Bank of Ireland 12.625% Perp		712	0.93
Standard Chartered PLC 7.375% Perp		205	0.27
Standard Chartered PLC 8.250% Perp		141	0.18
National Westminster Bank PLC 9.000% Perp		134	0.17
Natixis SA Perp		32	0.04
		------------	------------
		3,857	5.01

		------------	------------
Total investments in capital instruments at fair value through profit or loss		81,341	105.68

Derivative financial assets at fair value through profit or loss
Sale and repurchase agreement in respect of Banco Santander SA 6.375% Perp	1,599		2.08
Sale and repurchase agreement in respect of Santander UK PLC 7.037% Perp	787		1.02
Standard Chartered Bank Senior CDS 12/20/23	78		0.10
Lloyds Bank PLC Senior CDS 12/20/23	62		0.08
ING Bank NV Subordinated CDS 12/20/23	29		0.04
BNP Paribas SA Senior CDS 12/20/28	15		0.02
RR Future March 2019	4		0.01
	------------		------------
Derivative financial assets at fair value through profit or loss	2,574		3.35

Derivative financial liabilities at fair value through profit or loss
Sale and repurchase agreement in respect of BNP Paribas SA 4.875% Perp	(4,518)		(5.87)
Sale and repurchase agreement in respect of Achmea BV 6.000% Perp	(4,285)		(5.57)
Sale and repurchase agreement in respect of HBOS Capital Funding LP 6.850% Perp	(1,892)		(2.46)
Sale and repurchase agreement in respect of Banco Comercial Portugues SA 4.500% Perp	(1,705)		(2.21)
Sale and repurchase agreement in respect of Hongkong & Shanghai Banking Corporation 2.750 % Perp	(1,476)		(1.92)
Sale and repurchase agreement in respect of UniCredit SpA 6.625% Perp	(1,445)		(1.88)
Sale and repurchase agreement in respect of Ageasfinlux SA 1.032% Perp	(1,052)		(1.37)
Sale and repurchase agreement in respect of ASR Nederland NV 4.625% Perp	(968)		(1.26)
Markit iTraxx Europe Subordinated Financial Index 12/20/23	(523)		(0.68)
Markit iTraxx Europe Subordinated Financial Index 06/20/22	(431)		(0.56)
Markit iTraxx Europe Subordinated Financial Index 12/20/22	(339)		(0.44)
UniCredit SpA Subordinated CDS 12/20/23	(296)		(0.38)
Markit iTraxx Europe Subordinated Financial Index 12/20/23	(261)		(0.34)
Intesa Sanpaolo SpA Subordinated CDS 12/20/23	(189)		(0.25)
Danske Bank A/S Subordinated CDS 12/20/23	(161)		(0.21)
Markit iTraxx Europe Subordinated Financial Index 12/20/21	(158)		(0.21)
Royal Bank of Scotland Group PLC Subordinated CDS 12/20/23	(97)		(0.13)
United Kingdom of Great Britain and Northern Ireland Senior CDS 12/20/23	(80)		(0.10)
Intesa Sanpaolo SpA Senior CDS 12/20/23	(33)		(0.04)
UniCredit SpA Subordinated CDS 12/20/21	(29)		(0.04)
Lloyds Bank PLC Subordinated CDS 12/20/23	(6)		(0.01)
GBP/EUR foreign currency forward	(1,034)		(1.34)
GBP/USD foreign currency forward	(273)		(0.35)
GBP/DKK foreign currency forward	(22)		(0.03)
TY Future T Notes March 2019	(11)		(0.01)
	------------		------------
Derivative financial liabilities at fair value through profit or loss	(21,284)		(27.66)

Axiom Capital Contingent - Class E	3,050		3.96
Short position in respect of Santander UK PLC 7.037% Perp covered by sale and repurchase agreement	(700)		(0.91)
Short position in respect of Banco Santander SA 6.375% Perp covered by sale and repurchase agreement	(751)		(0.98)
Cash and cash equivalents	2,612		3.39
Collateral accounts for derivative financial instruments at fair value through profit or loss	8,922		11.59
Other receivables and prepayments	2,088		2.71
Bank overdrafts	(166)		(0.22)
Other payables and accruals		(710)	(0.92)
	------------		------------
Net assets	76,976		100.00
	------------		------------

Principal Risks

Risk is inherent in the Company's activities, but it is managed through an ongoing process of identifying and assessing risks and ensuring that appropriate controls are in place. The key risks faced by the Company, along with controls employed to mitigate those risks, are set out below.

Macroeconomic risk

Adverse changes affecting the global financial markets and economy as a whole, and in particular European financial debt markets, may have a material negative impact on the performance of the Company's investments. In addition, the Company's non-Pounds Sterling investments may be affected by fluctuations in currency exchange rates. Prices of financial and derivative instruments in which the Company invests are subject to significant volatility due to market risk.

The Company may use derivatives, including options, short market indices, credit default swaps ("CDS"), and others, to mitigate market-related downside risk, but the Company is not committed to maintaining market hedges at any time.

The Company has a systematic hedging policy with respect to currency risk. Subject only to the availability of suitable arrangements, the assets denominated in currencies other than Pounds Sterling are hedged by the Company (to a certain extent) by using currency forward agreements to buy or sell a specified amount of Pounds Sterling on a particular date in the future.

Historically, foreign exchange hedging has undermined many closed-ended investment funds, as a result of sharp movements in the foreign exchange rates leaving large hedging losses which could not be met as assets were illiquid and banks were under severe balance sheet strain and could not offer forbearance on facilities in breach.

The Company is exposed to foreign exchange hedging risks (see note 24) but this risk is mitigated by the following:

- Based on the worst case scenario observed in monthly spot movement in the past 10 years, our worst case expected hedging loss on expiry would be 9.08% of NAV;

- Our portfolio trading liquidity is such that it would take one day, in normal circumstances, to liquidate sufficient assets to meet such an anticipated worst case loss; and

- In "stressed" markets, we estimate it would take five days to raise such liquidity.

Following a referendum in June 2016 and the subsequent triggering of Article 50 in March 2017, the United Kingdom ("UK") was scheduled to leave the European Union ("EU") on 29 March 2019 ("Brexit"). The 29 March 2019 deadline has been extended, but the time and form of Brexit is still uncertain.

Brexit has increased the level of economic uncertainty for both the UK and the EU, and as we continue past the end of the original two year negotiation period, and (assuming that Brexit occurs) into any transitional or implementation period it is possible that there will be increased volatility in European financial markets, and that the following Brexit risks will impact the Company:

- Laws and regulations: potential changes to UK and EU-based law and regulation. However, as the Company is registered in Guernsey, it is protected from this to some extent; and

- Economic conditions: increased uncertainty, including specific impacts on growth, inflation, interest and currency rates, and also prices of capital instruments and appetite for future financing.

Although the exact impact of Brexit is not known, the Board believes that the Company is well placed to deal with Brexit.

Investment risk

There are certain risks associated with the Company's investment activities that are largely a result of the Company's investment policy (e.g. a portfolio concentrated on European financial debt) and certain investment techniques which are inherently risky (e.g. short selling).

There are numerous risks associated with having a concentrated portfolio and the primary risk management tool used by the Company is the extensive research performed by the Investment Manager prior to investment, along with the ongoing monitoring of a position once held in the Company's portfolio. The Board reviews portfolio concentration and receives a detailed overview of the portfolio positions quarterly, and more frequently if necessary.

The Company's activities may include short selling which theoretically could result in unlimited loss. The Company enters into these positions infrequently, often using CDS or other derivative positions to obtain economic short exposure, or to hedge certain positions, and relies on extensive due diligence prior to entering into a short position.

The Investment Manager reports to the Board at each quarterly Board meeting or more frequently, as necessary, on developments and risks relating to portfolio positions, financial instruments used in the portfolio and the portfolio composition as a whole.

Counterparty risk

The Company has credit and operational risk exposure to its counterparties which will require it to post collateral to support its obligations in connection with forwards and other derivative instruments. Cash pending investment or held on deposit will also be held with counterparties. The insolvency of a counterparty would result in a loss to the Company which could be material.

In order to mitigate this risk the Company seeks to trade only with reputable counterparties that the Investment Manager believes to be creditworthy. The Investment Manager negotiates its International Swaps and Derivatives Association ("ISDA") agreements to include bilateral collateral agreements. In addition, cash held is only with financial institutions with short term credit ratings of A-1 (Standard & Poor's) or P-1 (Moody's) or better.

Exposure to counterparties is monitored by the Investment Manager and reported to the Board each quarter.

Credit risk

The Company may use leverage to meet its investment objectives. The Company will also use forward contracts to hedge its non-Pounds Sterling assets. In order to do this, it will need to have in place credit lines with one or more financial institutions.

Due to market conditions or other factors, credit lines may be withdrawn and it might not be possible to put in place alternative arrangements. As such, the ability to meet the Company's investment objective and/or hedging strategy may not be met.

The Investment Manager monitors the use of credit lines and reports to the Board each quarter.

Share price risk

The Company is exposed to the risk that its shares may trade at a significant discount to NAV or that the market in the shares will be illiquid. To mitigate this risk the Company increased the frequency of the publication of its NAV to daily and has retained the Broker to maintain regular contact with existing and potential shareholders. In addition, the Company may instigate a share buyback programme in an attempt to reduce the discount. The Board monitors the trading activity of the shares on a regular basis and addresses the premium/discount to NAV at its regular quarterly meetings.

From 1 January 2018 to 31 December 2018, the Company's shares traded at an average premium to NAV of 1.56% (2017: 1.89% discount). The discount rose to 3.42% on 8 November 2018 as the NAV increased as a result of improved banking fundamentals. The premium rose to 7.71% on 5 July 2018 as markets continued to fluctuate in light of the fickle political environments. At the year end the shares traded at a 2.31% discount to NAV.

Regulatory risk

Changes in laws or regulations, or a failure to comply with these, could have a detrimental impact on the Company's operations. Prior to initiating a position, the Investment Manager considers any possible legal and regulatory issues that could impact the investment and the Company. The Company's advisers and service providers monitor regulatory changes on an ongoing basis, and the Board is apprised of any regulatory inquiries and material regulatory developments on a quarterly basis.

Brexit may, in time, lead to divergence in regulatory regimes between the UK and the EU and may create additional investment and trading opportunities. However, in a process which is yet to be determined, it is too early to fully appreciate what these opportunities will be or when they will present themselves.

Reputational risk

Reputational damage to the Company or the Investment Manager as a result of negative publicity could adversely affect the Company. To address this risk, the Company has engaged a public relations firm to monitor media coverage and actively engage with media sources as necessary. The Board also receives updates from the Broker and the Investment Manager on a quarterly basis and considers measures to address concerns as they arise.

Environmental, Employee, Social and Community Issues

As an investment company, the Company does not have any employees or physical property, and most of its activities are performed by other organisations. Therefore, the Company does not combust fuel and does not have any greenhouse gas emissions to report from its operations, nor does it have direct responsibility for any other emission producing sources.

When making investment decisions, the Investment Manager does not consider the impact that an entity in which the Company invests may have on the community. However, the Board believes that all companies have a duty to consider their impact on the community and the environment. The Directors, Administrator, Company Secretary and external auditor are all based in Guernsey and Board meetings are held in Guernsey, thus negating the need for long commutes or flights to/from Board meetings, and thereby minimising the negative environmental impact of travel to/from Board meetings.

Gender Diversity

The Board of Directors of the Company currently comprises three male Directors. Further information in relation to the Board's policy on diversity can be found in the Directors' Remuneration Report.

Key Performance Indicators

The Board uses the following key performance indicators ("KPIs") to help assess the Company's performance against its objectives. Further information regarding the Company's performance is provided in the Chairman's Statement and the Investment Manager's Report.

Dividends per Ordinary Share

As set out in the Prospectus, the Company intends to distribute all of its income from investments, net of expenses, by way of dividends on a quarterly basis. The Company may retain income for distribution in a subsequent quarter to that in which it arises in order to smooth dividend amounts or for the purposes of efficient cash management.

The Company announced dividends of £5,090,000 (6.00p per Ordinary Share) for the year ended 31 December 2018 (2017: 6.00p per Ordinary Share) (see note 6 for further details). The Company has met the 6.00p dividend per share target for 2016, 2017 and 2018 and expects to continue to be able to pay out dividends of this level in the future.

NAV and total return

In line with the Prospectus, the Company is targeting a net total return on invested capital of approximately 10% p.a. over a seven year period.

The Company achieved a total return of -8.00% in the year ended 31 December 2018 (2017: 16.14%). Although this negative performance is below the Company's long term target return of 10% p.a. net of operating expenses, the Board believes that the Company is in a position to meet the target rate of return in the future. However, the future rate of return and dividends cannot be guaranteed.

Following a difficult last eight months of 2018, the total return from inception to 31 December 2018 fell to 2.69% p.a., which is below the long term target return of 10% p.a. Together with the Investment Manager, the Board believes that the Company's long-term target return will continue to be achievable in the future.

Premium/discount of share price to NAV

The Board regularly monitors the premium/discount of the price of the Ordinary Shares to the NAV per share. Should the discount of share price to NAV become unacceptable to the Board, the Company may buy back some of its shares. Accordingly, the Board puts forward a proposal to Shareholders at the Annual General Meeting to renew the authority to buy back shares.

At 31 December 2018 the share price was 88.00p (2017: 105.25p), a 2.31% discount to NAV (2017: 0.79% premium).

William Scott

Chairman

3 April 2019

Statement of Comprehensive Income
for the year ended 31 December 2018

	Note	Year ended 31 December 2018	Year ended 31 December 2017
		£'000	£'000
Income
Capital instrument income		4,493	2,618
Credit default swap income		882	672
Bank interest receivable		80	-
		------------	------------
Total income		5,455	3,290
		------------	------------
Investment gains and losses on investments held at fair value through profit or loss
Realised gains on disposal of capital instruments and other investments	15	851	3,851
Movement in unrealised (losses)/gains on capital instruments and other investments	15	(7,860)	448
Realised (losses)/gains on derivative financial instruments	18	(887)	2,135
Movement in unrealised (losses)/gains on derivative financial instruments	18	(4,123)	1,955
		------------	------------
Total investment gains and losses		(12,019)	8,389
		------------	------------
Expenses
Investment management fee	8a	(549)	(394)
Other expenses	12	(269)	(318)
Transfer of listing fees		(192)	-
Interest payable and similar charges	11	(180)	(4)
Administration fee	8b	(125)	(122)
Directors' fees	8f	(95)	(95)
Performance fee	8a	-	(469)
		------------	------------
Total expenses		(1,410)	(1,402)
		------------	------------
(Loss)/profit from operating activities before gains and losses on foreign currency transactions		(7,974)	10,277

Gain/(loss) on foreign currency		875	(501)
		------------	------------
(Loss)/profit from operating activities after gains and losses on foreign currency transactions and before taxation		(7,099)	9,776

Taxation	13	-	(33)
		------------	------------
(Loss)/profit for the year attributable to the Owners of the Company		(7,099)	9,743
		------------	------------

(Loss)/earnings per Ordinary Share - basic and diluted	14	(8.48)p	15.88p
		------------	------------

All of the items in the above statement are derived from continuing operations.

There were no other comprehensive income items in the year.

The accompanying notes form an integral part of these financial statements.

Statement of Changes in Equity

for the year ended 31 December 2018

	Note	Distributable reserves and total
		£'000

Opening balance at 1 January 2017		58,010

Profit for the year ended 31 December 2017		9,743

Contributions by and distributions to Owners
Ordinary Shares issued	21	15,989
Share issue costs		(631)
Dividends paid	6	(3,747)
		------------
At 31 December 2017		79,364

Loss for the year ended 31 December 2018		(7,099)

Contributions by and distributions to Owners
Ordinary Shares issued	21	10,051
Share issue costs		(391)
Dividends paid	6	(4,949)
		------------
At 31 December 2018		76,976
		------------

There were no other comprehensive income items in the year.

The accompanying notes form an integral part of these financial statements.

Statement of Financial Position

as at 31 December 2018

	Note	As at 31 December 2018	As at 31 December 2017
		£'000	£'000
Assets
Investments in capital instruments at fair value through profit or loss	15, 19	81,341	72,113
Other investment at fair value through profit or loss	15, 19	3,050	2,345
Collateral accounts for derivative financial instruments at fair value through profit or loss	16,18	8,922	3,143
Derivative financial assets at fair value through profit or loss	18	2,574	2,046
Other receivables and prepayments	17	2,088	672
Cash and cash equivalents		2,612	16,808
		------------	------------
Total assets		100,587	97,127
		------------	------------

Current liabilities
Derivative financial liabilities at fair value through profit or loss	18	(21,284)	(6,958)
Short positions covered by sale and repurchase agreements	15	(1,451)	(838)
Other payables and accruals	20	(710)	(718)
Bank overdrafts		(166)	(9,249)
		------------	------------
Total liabilities		(23,611)	(17,763)
		------------	------------
Net assets		76,976	79,364
		------------	------------

Share capital and reserves
Share capital	21	-	-
Distributable reserves		76,976	79,364
		------------	------------
Total equity holders' funds		76,976	79,364
		------------	------------

Net asset value per Ordinary Share: basic and diluted	22	90.08p	104.43p

These financial statements were approved by the Board of Directors on 3 April 2019 and were signed on its behalf by:

William Scott

Chairman

3 April 2019

John Renouf

Director

3 April 2019

The accompanying notes on form an integral part of these financial statements.

Statement of Cash Flows

for the year ended 31 December 2018

	Note	Year ended 31 December 2018	Year ended 31 December 2017
		£'000	£'000
Cash flows from operating activities
Net (loss)/profit before taxation		(7,099)	9,776
Adjustments for:
Foreign exchange movements		(875)	501
Total investment losses/(gains) at fair value through profit or loss		12,019	(8,389)
Cash flows relating to financial instruments:
Payment (to)/from collateral accounts for derivative financial instruments	16	(5,780)	1,408
Purchase of investments at fair value through profit or loss	15	(73,722)	(129,089)
Sale of investments at fair value through profit or loss	15	55,752	108,075
Premiums received from selling credit default swap agreements	18	1,332	1,877
Premiums paid on buying credit default swap agreements	18	(476)	(1,838)
Purchase of foreign currency derivatives	18	(287,992)	(189,706)
Close-out of foreign currency derivatives	18	287,555	190,792
Purchase of bond futures	18	(5,390)	(1,906)
Sale of bond futures	18	4,656	1,954
Proceeds from sale and repurchase agreements	18	102,999	38,670
Payments to open reverse sale and repurchase agreements	18	(10,035)	(893)
Payments for closure of sale and repurchase agreements	18	(92,398)	(32,367)
Proceeds from closure of reverse sale and repurchase agreements	18	8,537	-
Opening of short positions	15	5,912	835
Closure of short positions	15	(5,023)	-
		------------	------------
Net cash outflow from operating activities before working capital changes		(10,028)	(10,300)
(Increase)/decrease in other receivables and prepayments		(664)	153
(Decrease)/increase in other payables and accruals		(31)	470
Taxation paid	13	-	(33)
		------------	------------
Net cash outflow from operating activities		(10,723)	(9,710)

Cash flows from financing activities
Proceeds from issue of Ordinary Shares		10,051	15,989
Share issue costs paid	23	(368)	(624)
Dividends paid	6	(4,948)	(3,747)
		------------	------------
Net cash inflow from financing activities		4,735	11,618
		------------	------------
(Decrease)/increase in cash and cash equivalents		(5,988)	1,908
Cash and cash equivalents brought forward		7,559	6,152
Effect of foreign exchange on cash and cash equivalents		875	(501)
		------------	------------
Cash and cash equivalents carried forward *		2,446	7,559
		------------	------------
Supplemental disclosure of cash flow information
Cash paid during the year for interest		(930)	(1,252)
Cash received during the year for interest		5,319	4,667
Cash received during the year for dividends		289	39

* Cash and cash equivalents at the year end includes bank overdrafts that are repayable on demand and form an integral part of the Company's cash management.

The accompanying notes form an integral part of these financial statements.

Notes to the Financial Statements

for the year ended 31 December 2018

1. General information

The Company was incorporated as an authorised closed-ended investment Company, under the Companies (Guernsey) Law, 2008 on 7 October 2015 with registered number 61003. Its Ordinary Shares were admitted to trading on the Premium Segment of the main market of the London Stock Exchange and to the premium listing segment of the FCA's Official List on 15 October 2018 (prior to this, the Ordinary Shares traded on the SFS of the London Stock Exchange).

Investment objective

The investment objective of the Company is to provide Shareholders with an attractive return, while limiting downside risk, through investment in the following financial institution investment instruments:

· Regulatory Capital Instruments, being financial instruments issued by a European financial institution which constitute regulatory capital for the purposes of Basel I, Basel II or Basel III or Solvency I or Solvency II;

· Other financial institution investment instruments, being financial instruments issued by a European financial institution, including without limitation senior debt, which do not constitute Regulatory Capital Instruments; and

· Derivative Instruments, being CDOs, securitisations or derivatives, whether funded or unfunded, linked or referenced to Regulatory Capital Instruments or Other financial institution investment instruments.

Investment policy

The Company seeks to invest in a diversified portfolio of financial institution investment instruments. The Company will focus primarily on investing in the secondary market although instruments may also be subscribed in the primary market where the Investment Manager, Axiom, identifies attractive opportunities.

The Company will invest its assets with the aim of spreading investment risk.

2. Statement of compliance

a) Basis of preparation

These financial statements present the results of the Company for the year ended 31 December 2018. The comparative figures stated were for the year ended 31 December 2017. These financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS"), as adopted by the European Union.

b) Going concern

After making reasonable enquiries, and assessing all data relating to the Company's liquidity, including its cash resources, income stream and Level 1 investments, the Directors have a reasonable expectation that the Company has adequate resources to continue in operational existence for the foreseeable future and do not consider there to be any threat to the going concern status of the Company. Therefore, the financial statements have been prepared on a going concern basis.

c) Basis of measurement

The financial statements have been prepared on a historical cost basis, except for certain financial instruments, which are measured at fair value through profit or loss.

d) Use of estimates and judgements

The preparation of financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the application of policies and the reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised, if the revision affects only that period, or in the period of the revision and future periods, if the revision affects both current and future periods.

Judgements made by management in the application of IFRS that have a significant effect on the financial statements and estimates with a significant risk of material adjustment are discussed in note 4.

3. Significant accounting policies

a) Income and expenses

Bank interest, capital instrument income and credit default swap income is recognised on an accruals basis.

Dividend income is recognised when the right to receive payment is established. Capital instrument income comprises bond interest and dividend income.

All expenses are recognised on an accruals basis. All of the Company's expenses (with the exception of share issue costs, which are charged directly to the distributable reserve) are charged through the Statement of Comprehensive Income in the period in which they are incurred.

b) Foreign currency

Foreign currency transactions are translated into Sterling using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at period-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the Statement of Comprehensive Income.

The exchange rates used by the Company as at 31 December 2018 were £1/€1.1122, £1/US$1.2754, £1/DKK8.3033, £1/CA$1.7403 and £1/SGD11.2920 (2017: £1/€1.1260, £1/US$1.3513, £1/DKK8.3828 and £1/CA$1.6985).

c) Taxation

The Directors intend to conduct the Company's affairs such that the Company continues to qualify for exemption from Guernsey taxation.

Investment income is recorded gross of applicable taxes and any tax expenses are recognised through the Statement of Comprehensive Income as incurred.

d) Financial assets and liabilities

The financial assets and liabilities of the Company are investments at fair value through profit or loss, collateral accounts for derivative financial instruments, cash and cash equivalents, other receivables, derivative financial instruments and other payables.

Derivative financial instruments, including credit default swap agreements, foreign currency forward contracts, bond future contracts and sale and repurchase agreements are recognised initially, and are subsequently measured at, fair value. Sale and repurchase agreements are recognised at fair value through profit or loss as they are generally not held to maturity and so are held for trading. Derivative financial instruments are classified as assets when their fair value is positive or as liabilities when their fair value is negative. Derivative assets and liabilities arising from different transactions are offset only if the transactions are with the same counterparty, a legal right of offset exists, and the parties intend to settle the cash flows on a net basis.

These financial instruments are classified at fair value through profit or loss upon initial recognition on the basis that they are part of a group of financial assets which are managed and have their performance evaluated on a fair value basis, in accordance with investment strategies and risk management of the Company.

Recognition

The Company recognises a financial asset or a financial liability when, and only when, it becomes a party to the contractual provisions of the instrument. Purchases and sales of financial assets that require delivery of assets within the time frame generally established by regulation or convention in the marketplace are recognised on the trade date, i.e. the date that the Company commits to purchase or sell the asset.

Derecognition

A financial asset (or, where applicable, a part of a financial asset or part of a group of similar assets) is derecognised where:

· The rights to receive cash flows from the asset have expired; or

· The Company has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a "pass-through" arrangement; and

· Either: (a) the Company has transferred substantially all the risks and rewards of the asset; or (b) the Company has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

When the Company has transferred its rights to receive cash flows from an asset (or has entered into a pass-through arrangement) and has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the asset is recognised to the extent of the Company's continuing involvement in the asset.

The Company derecognises a financial liability when the obligation under the liability is discharged, cancelled or expires.

Initial measurement

Financial assets and financial liabilities at fair value through profit or loss are recorded in the Statement of Financial Position at fair value. All transaction costs for such instruments are recognised directly in the Statement of Comprehensive Income.

Subsequent measurement

After initial measurement, the Company measures financial assets which are classified at fair value through profit or loss, at fair value. Subsequent changes in the fair value of those financial instruments are recorded in net gain or loss on financial assets and liabilities at fair value through profit or loss. Interest and dividends earned or paid on these instruments are recorded separately in interest income or expense and dividend income or expense.

Net gain or loss on financial assets and financial liabilities at fair value through profit or loss

The Company records its transactions in investments and the related revenue and expenses on a trade date basis. Unrealised gains and losses comprise changes in the fair value of financial instruments at the period end. These gains and losses represent the difference between an instrument's initial carrying amount and disposal amount, or cash payment on, or receipts from derivative contracts.

Offsetting of financial instruments

Financial assets and financial liabilities are reported net by counterparty in the Statement of Financial Position, provided that a legal right of offset exists, and is not offset by collateral pledged to or received from counterparties.

e) Offsetting of derivative assets and liabilities

IFRS 7, Financial Instruments: Disclosures, requires an entity to disclose information about offsetting rights and related arrangements. The disclosures in note 18 provide users with information to evaluate the effect of netting arrangements on the Company's financial position. The disclosures are required for all recognised financial instruments that could be offset in accordance with International Accounting Standard ("IAS") 32, Financial Instruments Presentation. The disclosures also apply to recognised financial instruments that are subject to an enforceable master netting agreement or similar agreement, irrespective of whether these are offset in accordance with IAS 32.

f) Collateral accounts for derivative financial instruments at fair value through profit or loss

Collateral accounts for derivative financial instruments at fair value through profit or loss comprise cash balances held at the Company's depositary and the Company's clearing brokers and cash collateral pledged to counterparties related to derivative contracts. Cash that is related to securities sold, not yet purchased, is restricted until the securities are purchased. Financial instruments held within the margin account consist of cash received from brokers to collateralise the Company's derivative contracts and amounts transferred from the Company's bank account.

g) Receivables and prepayments

Receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. The Company includes in this category other short-term receivables.

h) Cash and cash equivalents

Cash in hand and in banks and short-term deposits which are held to maturity are carried at cost. Cash and cash equivalents are defined as cash in hand, demand deposits and short-term, highly liquid investments readily convertible to known amounts of cash and subject to insignificant risk of changes in value.

i) Payables and accruals

Trade and other payables are carried at payment or settlement amounts. When payables are received in currencies other than the reporting currency, they are carried forward, translated at the rate prevailing at the year end date.

j) Share capital

Ordinary Shares are classified as equity. Incremental costs directly attributable to the issue of Ordinary Shares are recognised as a deduction from equity.

When share capital recognised as equity is repurchased, the amount of the consideration paid, which includes directly attributable costs, is recognised as a deduction from equity. Repurchased shares that are classified as Treasury Shares are presented as a deduction from equity. When Treasury Shares are sold or subsequently reissued, the amount received is recognised as an increase in equity and the resulting surplus or deficit is transferred to/from retained earnings.

Funds received from the issue of Ordinary Shares are allocated to share capital, to the extent that they relate to the nominal value of the Ordinary Shares, with any excess being allocated to distributable reserves.

k) Distributable reserves

All income and expenses, foreign exchange gains and losses and investment gains and losses of the Company are allocated to the distributable reserve.

l) NAV per share and earnings per share

The NAV per share disclosed on the face of the Statement of Financial Position is calculated by dividing the net assets by the number of Ordinary Shares in issue at the year end.

Earnings per share is calculated by dividing the earnings for the year by the weighted average number of Ordinary Shares in issue during the year.

m) Changes in accounting policy and disclosures

Except for the implementation of IFRS 9, Financial Instruments and IFRS 15, Revenue from Contracts with Customers, the accounting policies adopted are consistent with those of the previous financial period. The adoption of these accounting standards did not have any effect on the Company's Statement of Financial Position or equity.

Impact of adoption of IFRS 9

The Company adopted IFRS 9 with effect from 1 January 2018. IFRS 9 replaces IAS 39: Financial Instruments: Recognition and Measurement and introduces new requirements for classification and measurement, impairment and hedge accounting. IFRS 9 is not applicable to items that had already been derecognised at 1 January 2018, the date of initial application.

The Company has assessed the classification of financial instruments as at the date of initial application and has applied such classification retrospectively. Based on that assessment all financial assets previously held at fair value continue to be measured at fair value.

The classification and measurement requirements of IFRS 9 have been adopted retrospectively as of the date of initial application on 1 January 2018, however, the Company has chosen to take advantage of the option not to restate comparatives. Therefore, the 2017 figures are presented and measured under IAS 39.

In line with the characteristics of the Company's financial instruments as well as its approach to their management, the Company neither revoked nor made any new designations on the date of initial application. IFRS 9 has not resulted in changes in the carrying amount of the Company's financial instruments due to changes in measurement categories. All financial instruments that were classified at fair value through profit or loss under IAS 39 are still classified at fair value through profit or loss under IFRS 9.

Classification - Policy effective from 1 January 2018 (IFRS 9)

In accordance with IFRS 9, the Company classifies its financial assets and financial liabilities at initial recognition into the categories of financial assets and financial liabilities as discussed below.

In applying that classification, a financial asset or financial liability is considered to be held for trading if:

(a) It is acquired or incurred principally for the purpose of selling or repurchasing it in the near term; or

(b) On initial recognition, it is part of a portfolio of identified financial instruments that are managed together and for which, there is evidence of a recent actual pattern of short-term profit-taking; or

(c) It is a derivative (except for a derivative that is a financial guarantee contract or a designated and effective hedging instrument).

Financial assets

The Company classifies its financial assets as subsequently measured at amortised cost or measured at fair value through profit or loss on the basis of both:

· The business model for managing the financial assets; and

· The contractual cash flow characteristics of the financial asset.

A financial asset is measured at fair value through profit or loss if:

(a) Its contractual terms do not give rise to cash flows on specified dates that are solely payments of principal interest ("SPPI") on the principal amount outstanding; or

(b) It is not held within a business model whose objective is either to collect contractual cash flows, or to both collect contractual cash flows and sell; or

(c) At initial recognition, it is irrevocably designated as measured at fair value through profit or loss when doing so eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise from measuring assets or liabilities or recognising the gains and losses on them on different bases.

The Company includes in this category:

· Instruments held for trading. This category includes equity instruments and debt instruments which are acquired principally for the purpose of generating a profit from short-term fluctuations in price. This category also includes derivative contracts.

· Debt instruments. These include investments that are held under a business model to manage them on a fair value basis for investment income and fair value gains.

Financial liabilities

A financial liability is measured at fair value through profit or loss if it meets the definition of held for trading.

The Company includes in this category, derivative contracts in a liability position and equity and debt instruments sold short since they are classified as held for trading.

Classification - Policy effective before 1 January 2018 (IAS 39)

The Company classified its financial assets and financial liabilities at initial recognition into the following categories, in accordance with IAS 39.

Financial assets and liabilities at fair value through profit or loss

The category of financial assets and liabilities at fair value through profit or loss is sub-divided into:

· Financial assets and liabilities held for trading: financial assets are classified as held for trading if they are acquired for the purpose of selling and/or repurchasing in the near term. This category includes equity instruments, debt instruments and derivatives. These assets are acquired principally for the purpose of generating a profit from short-term fluctuations in price. All derivatives and liabilities from short sales of financial instruments are classified as held for trading. The Company's policy is not to apply hedge accounting.

· Financial instruments designated as at fair value through profit or loss upon initial recognition: these include investment in subsidiaries and investment in associates and debentures. These financial assets and liabilities are designated upon initial recognition on the basis that they are part of a group of financial assets that are managed and have their performance evaluated on a fair value basis, in accordance with risk management and investment strategies of the Company.

Receivables

Receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. The Company includes in this category collateral on derivatives and other short-term receivables.

Other financial liabilities

This category includes all financial liabilities, other than those classified at fair value through profit or loss. The Company includes in this category collateral on derivatives and other short-term payables.

n) Accounting standards issued but not yet effective

The International Accounting Standards Board ("IASB") has issued/revised a number of relevant standards with an effective date after the date of these financial statements. Any standards that are not deemed relevant to the operations of the Company have been excluded. The Directors have chosen not to early adopt these standards and interpretations and they do not anticipate that they would have a material impact on the Company's financial statements in the period of initial application.

		Effective date
IAS 12	Income Taxes (amendments resulting from Annual Improvements 2015-2017 Cycle (income tax consequences of dividends))	1 January 2019
IAS 23	Borrowing Costs (amendments resulting from Annual Improvements 2015-2017 Cycle (borrowing costs eligible for capitalisation))	1 January 2019
IFRIC 23	Uncertainty over Income Tax Treatments	1 January 2019

4. Use of judgements and estimates

The preparation of the Company's financial statements requires the Directors to make judgements, estimates and assumptions that affect the reported amounts recognised in the financial statements and disclosure of contingent liabilities. However, uncertainty about these assumptions and estimates could result in outcomes that could require a material adjustment to the carrying amount of the asset or liability in future periods.

Judgements

In the process of applying the Company's accounting policies, management has made the following judgement which had a significant effect on the amounts recognised in the financial statements:

i) Determination of functional currency

The performance of the Company is measured and reported to investors in Sterling. Although the majority of the Company's underlying assets are held in currencies other than Sterling, because the Company's capital is raised in Sterling, expenses are paid in Sterling and the Company hedges substantially all of its foreign currency risk back to Sterling, the Directors consider Sterling to be the Company's functional currency.

The Directors do not consider there to be any other judgements which have had a significant impact on the financial statements.

Estimates and assumptions

The Company based its assumptions and estimates on parameters available when the financial statements were approved. However, existing circumstances and assumptions about future developments may change due to market changes or circumstances arising beyond the control of the Company. Such changes are reflected in the assumptions when they occur.

i) Valuation of financial assets and liabilities

The Company uses the expertise of the Investment Manager to assess the prices of investments at the valuation date. The majority of the prices can be independently verified with reference to external data sources, however a minority of investments cannot be verified by reference to an external source and the Investment Manager secures an independent valuation with reference to the latest prices traded within the market place. These independent valuations take the form of quotes from brokers.

For further information on the assumptions and inputs used to fair value the financial instruments, please see note 19.

5. Segmental reporting

In accordance with IFRS 8, Operating Segments, it is mandatory for the Company to present and disclose segmental information based on the internal reports that are regularly reviewed by the Board in order to assess each segment's performance.

Management information for the Company as a whole is provided internally for decision making purposes. The Company does compartmentalise different investments in order to monitor compliance with investment restrictions, however the performance of these allocations does not drive the investment decision process. The Directors' decisions are based on a single integrated investment strategy and the Company's performance is evaluated on an overall basis. Therefore, the Directors are of the opinion that the Company is engaged in a single economic segment of business for all decision making purposes. The financial results of this segment are equivalent to the results of the Company as a whole.

6. Dividends

The Company has declared the following dividends during the year ended 31 December 2018:

	Total dividend declared in respect of earnings	Amount per Ordinary Share
	£'000
Dividends declared and paid in the year	4,948	6.00p
Less, dividend declared in respect of the prior year that was paid in 2018	(1,140)	(1.50)p

Add, dividend declared out of the profits of the year but paid after the year end:	1,282	1.50p
	------------	------------
Dividends declared in respect of the year	5,090	6.00p
	------------	------------

The Company declared the following dividends during the year ended 31 December 2017:

		Total dividend declared in respect of earnings	Amount per Ordinary Share
		£'000
Dividends declared and paid in the year		3,747	6.15p
Less, dividend declared in respect of the prior period that was paid in 2017		(1,005)	(1.65)p

Add, dividend declared out of the profits of the year but paid after the period end:
17 January 2018	23 February 2018	1,140	1.50p
		------------	------------
Dividends declared in respect of the year		3,882	6.00p
		------------	------------

In accordance with IFRS, dividends are only provided for when they become a contractual liability of the Company. Therefore, during the year a total of £4,948,000 (2017: £3,747,000) was incurred in respect of dividends, none of which was outstanding at the reporting date. The fourth dividend declared out of the profits for the year of £1,282,000 had not been provided for at 31 December 2018 as, in accordance with IFRS, it was not deemed to be a liability of the Company at that date.

7. Related parties

Details of the relationships between the Company and its related parties, being the Investment Manager and the Directors, are disclosed in notes 8a and 8f.

Details of the relationships between the Company and its other advisors and service providers (the Administrator, the Broker, the Registrar and the Depositary) are also disclosed in note 8.

As at 31 December 2018, the Company had holdings in the following investments which were managed by the Investment Manager:

	31 December 2018			31 December 2017
	Holding	Cost	Value	Holding	Cost	Value
		£'000	£'000		£'000	£'000
Axiom Contingent Capital - Class E	3,119	3,134	3,050	-	-	-
Axiom Premium Multi Strategies	-	-	-	1,739	2,146	2,345

During the year, the Company purchased: 3,110 units in Axiom Long Short - Class C for £2,880,000; 1,000 units in Axiom Equity - Class C for £758,000; and 3,119 units in Axiom Contingent Capital - Class E for £3,134,000.

During the year, the Company sold 1,739 units in Axiom Premium Multi Strategies for £2,315,000, realising a gain of £168,000 (2017: £nil). The Company also sold 3,110 units in Axiom Long Short - Class C for £2,562,000 realising a loss of £318,000. In addition, the Company sold 1,000 units in Axiom Equity - Class C for £560,000 realising a loss of £198,000.

During the year ended 31 December 2017, the Company: purchased 1,739 units in Axiom Premium Multi Strategies for £2,146,000; sold 2,000 units in Axiom Contingent Capital for £1,985,000, realising a gain of £526,000; and sold 740 units in Axiom Equity - Class C for £545,000, generating a realised gain of £125,000.

The Directors are not aware of any ultimate controlling party.

8. Key contracts

a) Investment Manager

The Company has entered into an Investment Management Agreement with Axiom under which the Company receives investment advice and management services.

Management fee

Under the terms of the Investment Management Agreement, a management fee is paid to the Investment Manager quarterly in arrears. The quarterly fee is calculated by reference to the following sliding scale:

i. where NAV is less than or equal to £250 million, 1% per annum of NAV;

ii. where NAV is greater than £250 million but less than or equal to £500 million, 1% per annum of NAV on the first £250 million and 0.8% per annum of NAV on the balance; and

iii. where NAV is greater than £500 million, 0.8% per annum of NAV, in each case, plus applicable VAT.

If in any quarter (other than the final quarter) of any accounting period the aggregate expenses of the Company (excluding management fees, performance fees, interest charged on sale and repurchase agreements, bank charges and withholding tax) during such quarter exceed an amount equal to one-quarter of 1.5% of the average NAV of the Company during such quarter (such amount being a "Quarterly Expenses Excess"), then the management fee payable in respect of that quarter shall be reduced by the amount of the Quarterly Expenses Excess, provided that the management fee shall not be reduced to an amount that is less than zero and no sum will be payable by the Investment Manager to the Company in respect of the Quarterly Expenses Excess.

If in the final quarter of any accounting period the aggregate expenses of the Company during such accounting period exceed an amount equal to 1.5% of the average NAV of the Company during such accounting period (such amount being an "Annual Expenses Excess"), then the management fee payable in respect of that quarter shall be reduced by the amount of the Annual Expenses Excess. If such reduction would not fully eliminate the Annual Expenses Excess (the amount of any such shortfall being a "Management Fee Deduction Shortfall"), the Investment Manager shall pay to the Company an amount equal to the Management Fee Deduction Shortfall (a "Management Fee Deduction Shortfall Payment") as soon as is reasonably practicable.

During the year, a total of £549,000 (2017: £394,000) was incurred in respect of Investment Management fees, of which £186,000 was payable at the reporting date (2017: £83,000).

Under the terms of the Investment Management Agreement, if at any time there has been any deduction from the management fee as a result of the Quarterly Expenses Excess or Annual Expenses Excess (a "Management Fee Deduction"), and during any subsequent quarter:

i. all or part of the Management Fee Deduction can be paid; and/or

ii. all or part of the Management Fee Deduction Shortfall payment can be repaid,

by the Company to the Investment Manager without:

iii. in any quarter (other than the final quarter) of any accounting period the aggregate expenses of the Company during such quarter exceeding an amount equal to one-quarter of 1.5% of the average NAV of the Company during such quarter; or

iv. in the final quarter of any accounting period the aggregate expenses of the Company during such accounting period exceeding an amount equal to 1.5% of the average NAV of the Company during such accounting period,

then such payment and/or repayment shall be made by the Company to the Investment Manager as soon as is reasonably practicable.

The Quarterly Expenses Excess and Annual Expenses Excess for the year was £259,000 (2017: £233,000), and at 31 December 2018 the Quarterly Expenses Excess and Annual Expenses Excess which could be payable to the Investment Manager in future periods was £723,000 (2017: £464,000) (see note 27).

Performance fee

The Investment Manager is entitled to receive from the Company a performance fee subject to certain performance benchmarks.

The fee is payable as a share of the Total Shareholder Return ("TSR") where TSR for this purpose is defined as:

i. the NAV (on a per share basis) at the end of the relevant accounting period; plus

ii. the total of all dividends and other distributions made to Shareholders since 5 November 2015 (being the date of the Company's original admission to the SFS) divided by the average number of shares in issue during the period from 5 November 2015 to the end of the relevant accounting period.

The performance fee, if any, is equal to 15% of the TSR in excess of a weighted average hurdle equal to a 7% per annum return. The performance fee is subject to a high water mark. The fee, if any, is payable annually and calculated on the basis of audited accounts of the Company.

50% of the performance fee will be settled in cash. The balance will be satisfied in shares, subject to certain exceptions where settlement in shares would be prohibited by law or would result in the Investment Manager or any person acting in concert with it incurring an obligation to make an offer under Rule 9 of the City Code, in which case the balance will be settled in cash.

Assuming no such requirement, the balance of the performance fee will be settled either by the allotment to the Investment Manager of such number of new shares credited as fully paid as is equal to 50% of the performance fee (net of VAT) divided by the most recent practicable NAV per share (rounded down to the nearest whole share) or by the acquisition of shares in the market, as required under the terms of the Investment Management Agreement. All shares allotted to (or acquired for) the Investment Manager in part satisfaction of the performance fee will be subject to a lock-up until the date that is 12 months from the end of the accounting period to which the award of such shares related.

At the year end a performance fee of £nil (2017: £469,000) was payable by the Company. £234,000 of the £469,000 performance fee for the year ended 31 December 2017 that is to be settled in shares remained payable at the year end date. On 21 February 2019, the Company paid the Investment Manager £234,000, in settlement of the 2017 performance fee, which was subsequently used to purchase 261,970 shares in the Company.

b) Administrator and Company Secretary

Elysium has been appointed by the Company to provide day to day administration services to the Company, to calculate the NAV per share as at the end of each calendar month and to provide company secretarial functions required under the Law.

Under the terms of the Administration Agreement, the Administrator is entitled to receive a fee of £110,000 per annum, which is subject to an annual adjustment upwards to reflect any percentage change in the retail prices index over the preceding year. In addition, the Company pays the Administrator a fee for work undertaken in connection with the daily NAV, subject to a maximum aggregate amount of £10,000 per annum. The Administrator was also paid £5,000 in respect of the work undertaken on the transfer of listing and £33,000 in respect of the new Prospectus (2017: new Prospectus and Supplementary Prospectus fees of £66,000). The new Prospectus fees are included in share issue costs in the Statement of Changes in Equity.

During the year, a total of £125,000 (2017: £122,000) was incurred in respect of Administration fees of which £31,000 (2017: £31,000) was payable at the reporting date.

c) Broker

Winterflood Securities Limited ("Winterflood") was appointed to act as Corporate Broker ("Broker") for the Company with effect from 31 October 2017. In consideration of Winterflood agreeing to act as Broker, the Company pays Winterflood an annual retainer fee of £35,000 per annum.

Prior to Winterflood's appointment, Liberum Capital Limited ("Liberum") had been appointed to act as Corporate Broker to the Company, for an annual retainer fee of £75,000 per annum.

For the year to 31 December 2018, the Company incurred Broker fees of £35,000 (2017: £80,000) of which £6,000 was payable at the year end date (2017: £6,000).

In addition, Winterflood was paid £50,000 for its work on the transfer of listing and £191,000 for its work on the placings and new Prospectus. In the year ended 2017, Winterflood was paid £97,000 for its work on the placing and Liberum was paid £34,000 for its work on the new Prospectus and placing. The Prospectus and placing fees are included in share issue costs in the Statement of Changes in Equity.

d) Registrar

Link Market Services (Guernsey) Limited is Registrar of the Company. Under the terms of the Registrar Agreement, the Registrar is entitled to receive from the Company certain annual maintenance and activity fees, subject to a minimum fee of £5,500 per annum.

During the year, a total of £19,000 (2017: £17,000) was incurred in respect of Registrar fees, of which £3,000 was payable at 31 December 2018 (2017: £3,000).

In addition, Link was paid £4,000 for its work on the General Meeting required to effect the changes to enable the Company to be listed on the Premium Segment.

e) Depositary

CACEIS Bank France has been appointed by the Company to provide depositary, settlement and other associated services to the Company.

Under the terms of the Depositary Agreement, the Depositary is entitled to receive from the Company:

i. an annual depositary fee of 0.03% of NAV, subject to a minimum annual fee of €25,000;

ii. a safekeeping fee calculated using a basis point fee charge based on the country of settlement and the value of the assets; and

iii. an administration fee on each transaction, together with various other payment/wire charges on outgoing payments.

During the period, a total of £38,000 (2017: £41,000) was incurred in respect of depositary fees, of which £6,000 was payable at the reporting date (2017: £6,000).

CACEIS Bank Luxembourg is entitled to receive a monthly valuation agent fee from the Company in respect of the provision of certain accounting services which will, subject to a minimum monthly fee of €2,500, be calculated by reference to the following tiered sliding scale:

i. where NAV is less than or equal to €50 million, 0.05% per annum of NAV;

ii. where NAV is greater than €50 million but less than or equal to €100 million, 0.04% per annum of NAV; and

iii. where NAV is greater than €100 million, 0.03% per annum of NAV, in each case, plus applicable VAT.

During the period, a total of £39,000 (2017: £28,000) was incurred in respect of valuation agent fees paid to CACEIS Bank Luxembourg, of which £6,000 was payable at 31 December 2018 (2017: £6,000).

f) Directors' remuneration

William Scott (Chairman) is paid £35,000 per annum, John Renouf (Chairman of the Audit Committee) is paid £32,500 per annum, and Max Hilton is paid £27,500 per annum.

The Directors are also entitled to reimbursement of all reasonable travelling and other expenses properly incurred in the performance of their duties.

During the year, a total of £95,000 (2017: £95,000) was incurred in respect of Directors' fees, none of which was payable at the reporting date (2017: £nil). No bonus or pension contributions were paid or payable on behalf of the Directors.

9. Key management and employees

Other than the Non-Executive Directors, the Company has had no employees since its incorporation.

10. Auditor's remuneration

For the year ended 31 December 2018, fees charged by EY, together with amounts accrued at 31 December 2018, amounted to £53,000 (2017: £139,000). Of this, £24,000 (2018 fee: £36,000, less 2017 over accrual: £12,000 (note 12)) (2017: £61,000) related to audit services, £9,000 related to transfer of listing work and £20,000 (included in Share issue costs) related to reporting accountant and tax work on the renewal of the Prospectus (2017: £78,000 for reporting accountant and tax work on the renewal of the Prospectus). As at 31 December 2018, £36,000 (2017: £35,000) was due to EY.

11. Interest payable and similar charges
	Year ended 31 December 2018	Year ended 31 December 2017
	£'000	£'000
Interest payable on sale and repurchase agreements	77	5
Bank interest	100	(2)
Commission	3	1
	------------	------------
	180	4
	------------	------------

12. Other expenses
	Year ended 31 December 2018	Year ended 31 December 2017
	£'000	£'000
Other expenses	54	20
PR expenses	39	47
Valuation agent fees	39	28
Depositary fees (note 8e)	38	41
Broker fees (note 8c)	35	80
Audit fees (note 10)	24	61
Legal fees	21	24
Registrar fees (note 8d)	19	17
	------------	------------
	269	318
	------------	------------

13. Taxation

The Company is exempt from taxation in Guernsey, and it is the intention to conduct the affairs of the Company to ensure that it continues to qualify for exempt company status for the purposes of Guernsey taxation. The Company pays a fixed fee of £1,200 per annum to maintain exempt company status.

14. Loss per Ordinary Share

The loss per Ordinary Share of 8.48p (2017: earnings of 15.88p) is based on a loss attributable to owners of the Company of £7,099,000 (2017: profit of £9,743,000) and on a weighted average number of 83,724,996 (2017: 61,343,602) Ordinary Shares in issue since 1 January 2018. There is no difference between the basic and diluted loss per share.

15. Investments at fair value through profit or loss
	Year ended 31 December 2018	Year ended 31 December 2017
	£'000	£'000
Investments in capital instruments
Opening balance	72,113	49,145
Additions in the year	66,951	126,942
Sales in the year	(51,068)	(108,075)
Movement in unrealised (losses)/gains in the year	(7,686)	250
Realised gains in the year	1,031	3,851
	------------	------------
Closing valuation	81,341	72,113
	------------	------------

Other investments
Opening balance	2,345	-
Additions in the year	6,771	2,147
Sales in the year	(5,436)	-
Movement in unrealised (losses)/gains in the year	(283)	198
Realised losses in the year	(347)	-
	------------	------------
Closing valuation	3,050	2,345
	------------	------------
Short positions covered by sale and repurchase agreements
Opening balance	(838)	-
Sales in the year	(5,912)	(838)
Purchases in the year	5,023	-
Movement in unrealised gains in the year	109	-
Realised gains in the year	167	-
	------------	------------
Closing valuation	(1,451)	(838)
	------------	------------
Total
Opening balance	73,620	49,145
Additions in the year	78,745	129,089
Sales in the year	(62,416)	(108,913)
Movement in unrealised (losses)/gains in the year	(7,860)	448
Realised gains in the year	851	3,851
	------------	------------
Closing valuation	82,940	73,620
	------------	------------

Investments in capital instruments at fair value through profit or loss comprise mainly of investments in bonds, and also preference shares, structured notes and other securities that have a similar income profile to that of bonds. The other investment at fair value through profit or loss consists of an investment in an open ended fund managed by the Investment Manager (see note 7) to obtain diversified exposure on bank equities.

As at 31 December 2018, the Company had ten (2017: four) open sale and repurchase agreements, including two (2017: one) reverse sale and repurchase agreement (see note 18). The reverse sale and repurchase agreements are open ended and were used to cover the sale of capital instruments (the short positions noted above).

The fair value of the capital instruments subject to sale and repurchase agreements (excluding the short positions) at 31 December 2018 was £18,628,000 (2017: £7,234,000). The fair value net of the short positions was £17,177,000 (2017: £6,395,000).

16. Collateral accounts for derivative financial instruments at fair value through profit or loss
	31 December 2018	31 December 2017
	£'000	£'000
JP Morgan	6,290	1,370
Goldman Sachs International	1,819	1,066
Credit Suisse	616	598
CACEIS Bank France	197	109
	------------	------------
Total collateral held by brokers	8,922	3,143
	------------	------------

With respect to derivatives, the Company pledges cash and/or other liquid securities ("Collateral") to third parties as initial margin and as variation margin. Collateral may be transferred either to the third party or to an unaffiliated custodian for the benefit of the third party. In the case where Collateral is transferred to the third party, the third party pursuant to these derivatives arrangements will be permitted to use, reuse, lend, borrow, hypothecate or re-hypothecate such Collateral. The third parties will have no obligation to retain an equivalent amount of similar property in their possession and control, until such time as the Company's obligations to the third party are satisfied. The Company has no right to this Collateral but has the right to receive fungible, equivalent Collateral upon the Company's satisfaction of the Company's obligation under the derivatives.

17. Other receivables and prepayments
	31 December 2018	31 December 2017
	£'000	£'000
Accrued capital instrument income receivable	1,286	634
Due from sale of capital instrument	758	-
Interest due on credit default swaps	24	22
Prepayments	13	9
Interest due on collateral held by brokers	7	7
	------------	------------
	2,088	672
	------------	------------

18. Derivative financial instruments

Credit default swap agreements

A credit default swap agreement represents an agreement that one party, the protection buyer, pays a fixed fee, the premium, in return for a payment by the other party, the protection seller, contingent upon a specified credit event relating to an underlying reference asset. If a specified credit event occurs, there is an exchange of cash flows and/or securities designed so the net payment to the protection buyer reflects the loss incurred by holders of the referenced obligation in the event of its default. The International Swaps and Derivatives Association ("ISDA") establishes the nature of the credit event and such events include bankruptcy and failure to meet payment obligations when due.

	Year ended 31 December 2018	Year ended 31 December 2017
	£'000	£'000
Opening balance	915	(2,238)
Premiums received from selling credit default swap agreements	(1,332)	(1,877)
Premiums paid on buying credit default swap agreements	476	1,838
Movement in unrealised (losses)/gains in the year	(2,693)	2,100
Realised gains in the year	215	1,092
	------------	------------
Outstanding (liability)/asset due on credit default swaps	(2,419)	915
	------------	------------
Credit default swap assets at fair value through profit or loss	184	1,093
Credit default swap liabilities at fair value through profit or loss	(2,603)	(178)
	------------	------------
Outstanding (liability)/asset due on credit default swaps	(2,419)	915
	------------	------------

Interest paid or received on the credit default swap agreements has been accounted for in the Statement of Comprehensive Income as it has been incurred or received. At the year end, £24,000 (2017: £22,000) of interest on credit default swap agreements was due to the Company.

Collateral totalling £8,205,000 (2017: £3,034,000) was held in respect of the credit default swap agreements.

Foreign currency forwards

Foreign currency forward contracts are used for trading purposes and are used to hedge the Company's exposure to changes in foreign currency exchange rates on its foreign portfolio holdings. A foreign currency forward contract is a commitment to purchase or sell a foreign currency on a future date and at a negotiated forward exchange rate.

	Year ended 31 December 2018	Year ended 31 December 2017
	£'000	£'000
Opening balance	(390)	(190)
Purchase of foreign currency derivatives	287,992	189,706
Closing-out of foreign currency derivatives	(287,555)	(190,792)
Movement in unrealised losses in the year	(939)	(200)
Realised (losses)/gains in the year	(437)	1,086
	------------	------------
Net liabilities on foreign currency forwards	(1,329)	(390)
	------------	------------
Foreign currency forward assets at fair value through profit or loss	-	54
Foreign currency forward liabilities at fair value through profit or loss	(1,329)	(444)
	------------	------------
Net liabilities on foreign currency forwards	(1,329)	(390)
	------------	------------

Bond futures

A bond future contract involves a commitment by the Company to purchase or sell bond futures for a predetermined price, with payment and delivery of the bond future at a predetermined future date.

	Year ended 31 December 2018	Year ended 31 December 2017
	£'000	£'000
Opening balance	5	9
Purchase of bond futures	5,390	1,906
Sale of bond futures	(4,656)	(1,954)
Movement in unrealised (losses)/gains in the year	(138)	50
Realised losses in the year	(608)	(6)
	------------	------------
Balance (payable)/receivable on bond futures	(7)	5
	------------	------------
Bond future assets at fair value through profit or loss	4	5
Bond future liabilities at fair value through profit or loss	(11)	-
	------------	------------
Balance (payable)/receivable on bond futures	(7)	5
	------------	------------

Sale and repurchase agreements

Under the terms of a sale and repurchase agreement one party in the agreement acts as a borrower of cash, using a security held as collateral, and the other party in the agreement acts as a lender of cash. Almost any security may be employed in the sale and repurchase agreement. Interest is paid by the borrower for the benefit of having funds to use until a specified date on which the effective loan needs to be repaid.

	Year ended 31 December 2018	Year ended 31 December 2017
	£'000	£'000
Opening balance	(5,442)	-
Opening of sale and repurchase agreements	(102,999)	(38,670)
Opening of reverse sale and repurchase agreements	10,035	893
Closing-out of sale and repurchase agreements	92,398	32,367
Closing-out of reverse sale and repurchase agreements	(8,537)	-
Movement in unrealised (losses)/gains in the year	(353)	5
Realised losses in the year	(57)	(37)
	------------	------------
Total liabilities on sale and repurchase agreements	(14,955)	(5,442)
	------------	------------
Sale and repurchase assets at fair value through profit or loss	2,386	894
Sale and repurchase liabilities at fair value through profit or loss	(17,341)	(6,336)
	------------	------------
Total liabilities on sale and repurchase agreements	(14,955)	(5,442)
	------------	------------

Interest paid on sale and repurchase agreements has been accounted for in the Statement of Comprehensive Income as it has been incurred. At 31 December 2018 £6,000 (2017: £5,000) interest on sale and repurchase agreements was payable by the Company.

Offsetting of derivative financial instruments

The Company presents the fair value of its derivative assets and liabilities on a gross basis, no such assets or liabilities have been offset in the Statement of Financial Position. Certain derivative financial instruments are subject to enforceable master netting arrangements, such as ISDA master netting agreements, or similar agreements that cover similar financial instruments.

The similar agreements include derivative clearing agreements, global master repurchase agreements, global master securities lending agreements, and any related rights to financial collateral. The similar financial instruments and transactions include derivatives, sale and repurchase agreements, reverse sale and repurchase agreements, securities borrowing, and securities lending agreements.

The Company's agreements allow for offsetting following an event of default, but not in the ordinary course of business, and the Company does not intend to settle these transactions on a net basis or settle the assets and liabilities on a simultaneous basis.

The table below sets out the carrying amounts of recognised financial assets and liabilities that are subject to the above arrangements:

	Gross carrying amount before offsetting	Amounts offset in accordance with offsetting criteria	Net amount presented in Statement of Financial Position	Effect of remaining rights of offset that do not meet the criteria for offsetting in the Statement of Financial Position - Cash held as collateral	Net exposure
	£'000	£'000	£'000	£'000	£'000
31 December 2018
Financial assets
Derivatives	2,574	-	2,574	-	2,574
Collateral accounts for derivative financial instruments (note 16)	8,922	-	8,922	(2,799)	6,123
	------------	------------	------------	------------	------------
Total assets	11,496	-	11,496	(2,799)	8,697
	------------	------------	------------	------------	------------
Financial liabilities
Derivatives	(21,284)	-	(21,284)	2,799	(18,485)
	------------	------------	------------	------------	------------
Total liabilities	(21,284)	-	(21,284)	2,799	(18,485)
	------------	------------	------------	------------	------------
31 December 2017
Financial assets
Derivatives	2,046	-	2,046	-	2,046
Collateral accounts for derivative financial instruments (note 16)	3,143	-	3,143	(287)	2,856
	------------	------------	------------	------------	------------
Total assets	5,189	-	5,189	(287)	4,902
	------------	------------	------------	------------	------------
Financial liabilities
Derivatives	(6,958)	-	(6,958)	287	(6,671)
	------------	------------	------------	------------	------------
Total liabilities	(6,958)	-	(6,958)	287	(6,671)
	------------	------------	------------	------------	------------

19. Fair value of financial instruments at fair value through profit or loss

The following table shows financial instruments recognised at fair value, analysed between those whose fair value is based on:

· Quoted prices in active markets for identical assets or liabilities (Level 1);

· Those involving inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (as prices) or indirectly (derived from prices) (Level 2); and

· Those with inputs for the asset or liability that are not based on observable market data (unobservable inputs) (Level 3).

At 31 December 2018, the financial assets and liabilities designated at fair value through profit or loss were as follows:

	Level 1	Level 2	Level 3	Total
	£'000	£'000	£'000	£'000
31 December 2018
Traded/listed capital instruments at fair value through profit or loss	74,001	7,340	-	81,341
Other investments at fair value through profit or loss (note 7)	3,050	-	-	3,050
Credit default swap assets	-	184	-	184
Credit default swap liabilities	-	(2,603)	-	(2,603)
Derivative financial assets	4	2,386	-	2,390
Derivative financial liabilities	(11)	(18,670)	-	(18,681)
Short positions covered by sale and repurchase agreements	-	(1,451)	-	(1,451)
	------------	------------	------------	------------
	77,044	(12,814)	-	64,230
	------------	------------	------------	------------
31 December 2017
Traded/listed capital instruments at fair value through profit or loss	69,620	2,493	-	72,113
Other investments at fair value through profit or loss (note 7)	2,345	-	-	2,345
Credit default swap assets	-	1,093	-	1,093
Credit default swap liabilities	-	(178)	-	(178)
Derivative financial assets	5	948	-	953
Derivative financial liabilities	-	(6,780)	-	(6,780)
Short position covered by sale and repurchase agreement	-	(838)	-	(838)
	------------	------------	------------	------------
	71,970	(3,262)	-	68,708
	------------	------------	------------	------------

Level 1 financial instruments include listed capital instruments at fair value through profit or loss, an unlisted open ended fund and bond future contracts, which have been valued at fair value by reference to quoted prices in active markets. No unobservable inputs were included in determining the fair value of these investments and, as such, alternative carrying values for ranges of unobservable inputs have not been provided.

Level 2 financial instruments include broker quoted bonds, credit default swap agreements, foreign currency forward contracts and sale and repurchase agreements. Each of these financial investments are valued by the Investment Manager using market observable inputs. The fair value of these securities may be based on, but are not limited to, the following inputs: market price of the underlying securities; notional amount; expiration date; fixed and floating interest rates; payment schedules; and/or dividends declared.

The model used by the Company to fair value credit default swap agreements prices a credit default swap as a function of its schedule, deal spread, notional value, credit default swap curve and yield curve. The key assumptions employed in the model include: constant recovery as a fraction of par, piecewise constant risk neutral hazard rates and default events being statistically independent of changes in the default-free yield curve.

The fair values of the derivative financial instruments are based on the forward foreign exchange rate curve.

Transfers between levels

Transfers between levels during the year are determined and deemed to have occurred at each financial reporting date. There were no investments classified as Level 3 during the year, and no transfers between levels in the year. See notes 15, 16 and 18 for movements in instruments held at fair value through profit or loss.

20. Other payables and accruals
	31 December 2018	31 December 2017
	£'000	£'000
Performance fee (note 8a)	234	469
Investment management fee (note 8a)	186	83
Share issue costs	79	56
Transfer of listing fees	60	-
Accrued interest payable on capital instrument short positions	43	8
Audit fees (note 10)	36	35
Administration fee (note 8b)	31	31
Other accruals	14	10
Depositary fees (note 8e)	6	6
Valuation agent fees (note 8e)	6	6
Broker fee (note 8c)	6	6
Interest payable on sale and repurchase agreements (note 18)	6	5
Registrar fees (note 8d)	3	3
	------------	------------
	710	718
	------------	------------

21. Share capital
	31 December 2018		31 December 2017
	Number	£'000	Number	£'000
Authorised:
Ordinary shares of no par value	Unlimited	-	Unlimited	-
	------------	------------	------------	------------
Allotted, called up and fully paid:
Ordinary Shares of no par value	85,452,024	-	75,999,351	-
	------------	------------	------------	------------

Issued share capital
	Number of shares	Price per share	Gross proceeds £'000
Shares in issue as at 31 December 2016	60,930,764
21 December 2017	15,068,587	106.11p	15,989
	------------
Shares in issue as at 31 December 2017	75,999,351

13 February 2018	8,229,174	107.50p	8,846
15 August 2018	1,223,499	98.50p	1,205
	------------
Shares in issue as at 31 December 2018	85,452,024

4 February 2019	6,400,880	92.81p	5,941
	------------
Shares in issue as at 3 April 2019	91,852,904
	------------

The Ordinary Shares carry the right to receive all dividends declared by the Company. Shareholders are entitled to all dividends paid by the Company and, on a winding up, provided the Company has satisfied all of its liabilities, the Shareholders are entitled to all of the surplus assets of the Company. Shareholders will be entitled to attend and vote at all general meetings of the Company and, on a poll, will be entitled to one vote for each Ordinary Share held.

22. Net asset value per Ordinary Share

The net asset value per Ordinary Share is based on the net assets attributable to owners of the Company of £76,976,000 (2017: £79,364,000), and on 85,452,024 (2017: 75,999,351) Ordinary Shares in issue at the year end.

23. Changes in liabilities arising from financing activities

During the year the Company raised £10,052,000 (2017: £15,989,000) through the placing of 9,452,673 (2017: 15,068,587) new Ordinary Shares of no par value. Share issue costs of £391,000 (2017: £631,000) were incurred in relation to the placings, and at the year end £79,000 (2017: £56,000) of the issue costs were outstanding, resulting in cash flows in relation to share issue costs in the year of £368,000 (2017: £624,000).

24. Financial instruments and risk management

The Company invests its assets with the aim of spreading investment risk.

Risk is inherent in the Company's activities, but it is managed through a process of ongoing identification, measurement and monitoring. The Company is exposed to market risk (which includes currency risk, interest rate risk and price risk), credit risk and liquidity risk from the financial instruments it holds. Risk management procedures are in place to minimise the Company's exposure to these financial risks, in order to create and protect Shareholder value.

Risk management structure

The Investment Manager is responsible for identifying and controlling risks. The Board of Directors supervises the Investment Manager and is ultimately responsible for the overall risk management approach within the Company.

The Company has no employees and is reliant on the performance of third party service providers. Failure by the Investment Manager, Administrator, Depositary, Registrar or any other third party service provider to perform in accordance with the terms of its appointment could have a significant detrimental impact on the operation of the Company.

The market in which the Company participates is competitive and rapidly changing.

Risk concentration

Concentration indicates the relative sensitivity of the Company's performance to developments affecting a particular industry or geographical location. Concentrations of risk arise when a number of financial instruments or contracts are entered into with the same counterparty, or where a number of counterparties are engaged in similar business activities, or activities in the same geographic region, or have similar economic features that would cause their ability to meet contractual obligations to be similarly affected by changes in economic, political or other conditions. Concentrations of liquidity risk may arise from the repayment terms of financial liabilities, sources of borrowing facilities or reliance on a particular market in which to realise liquid assets. Concentrations of foreign exchange risk may arise if the Company has a significant net open position in a single foreign currency, or aggregate net open position in several currencies that tend to move together.

Within the aim of maintaining a diversified investment portfolio, and thus mitigating concentration risks, the Company has established the following investment restriction in respect of the general deployment of assets:

Concentration

No more than 15% of NAV, calculated at the time of investment, will be exposed to any one financial counterparty. This limit will increase to 20% where, in the Investment Manager's opinion (having informed the Board in writing of such increase) the relevant financial institution investment instrument is expected to amortise such that, within 12 months of the date of the investment, the expected exposure (net of any hedging costs and expenses) will be equal to or less than 15% of NAV, calculated at the time of the investment.

Market risk

i) Price risk

Price risk exposure arises from the uncertainty about future prices of financial instruments held. It represents the potential loss that the Company may suffer through holding positions in the face of price movements. The investments in capital instruments, an unlisted open ended fund, and bond futures at fair value through profit or loss (notes 15, 18 and 19) are exposed to price risk and it is not the intention to mitigate the price risk.

At 31 December 2018, if the valuation of these investments at fair value through profit or loss had moved by 5% with all other variables remaining constant, the change in net assets would amount to approximately +/- £4,147,000 (2017: +/- £3,681,000). The fair value of financial instruments exposed to price risk at 31 December 2018 was £82,940,000 (2017: £73,625,000).

ii) Foreign currency risk

Foreign currency risk is the risk that the value of a financial instrument will fluctuate because of changes in foreign currency exchange rates. Currency risk arises when future commercial transactions and recognised assets and liabilities are denominated in a currency that is not the Company's functional currency. The Company invests in securities and other investments that are denominated in currencies other than Sterling. Accordingly, the value of the Company's assets may be affected favourably or unfavourably by fluctuations in currency rates and therefore the Company will necessarily be subject to foreign exchange risks.

In order to limit the exposure to foreign currency risk, the Company entered into hedging contracts during the year. At the year end, the Company held the following foreign currency forward contracts:

31 December 2018
Maturity date	Amount to be sold	Amount to be purchased
16 January 2019	€43,812,000	£38,405,000
16 January 2019	US$9,523,000	£7,197,000
16 January 2019	DKK7,275,000	£855,000

31 December 2017
Maturity date	Amount to be sold	Amount to be purchased
16 January 2018	€47,192,000	£41,546,000
16 January 2018	US$12,452,000	£9,292,000

At the year end a proportion of the net financial assets of the Company were denominated in currencies other than Sterling as follows:

	Investments at fair value through profit or loss	Receivables	Cash and cash equivalents	Exposure	Foreign currency forward contract	Net exposure
	£'000	£'000	£'000	£'000	£'000	£'000
31 December 2018
Euro	34,408	951	2,185	37,544	(39,438)	(1,894)
US Dollars	9,044	865	(166)	9,743	(7,470)	2,273
Danish Krone	856	20	-	876	(878)	(2)
Canadian Dollars	-	-	-	-	-	-
Singaporean Dollars	-	-	4	4	-	4
	------------	------------	------------	------------	------------	------------
	44,308	1,836	2,023	48,167	(47,786)	381
	------------	------------	------------	------------	------------	------------

	Investments at fair value through profit or loss	Receivables	Cash and cash equivalents	Exposure	Foreign currency forward contract	Net exposure
	£'000	£'000	£'000	£'000	£'000	£'000
31 December 2017
Euro	40,980	412	(4,125)	37,267	(41,990)	(4,723)
US Dollars	13,038	110	(5,123)	8,025	(9,238)	(1,213)
Danish Krone	-	-	417	417	-	417
Canadian Dollars	-	-	688	688	-	688
	------------	------------	------------	------------	------------	------------
	54,018	522	(8,143)	46,397	(51,228)	(4,831)
	------------	------------	------------	------------	------------	------------

Other future foreign exchange hedging contracts may be employed, such as currency swap agreements, futures contracts and options. There can be no certainty as to the efficacy of any hedging transactions.

At 31 December 2018, if the exchange rates had strengthened/weakened by 5% against Sterling with all other variables remaining constant, net assets at 31 December 2018 would have decreased/increased by £19,000 (2017: £242,000).

iii) Interest rate risk

Interest rate risk arises from the possibility that changes in interest rates will affect future cash flows or the fair values of financial instruments. The Company is exposed to risks associated with the effects of fluctuations in the prevailing levels of market interest rates on its financial instruments and cash flow. A large number of the capital instruments bear interest at a fixed rate, but capital instruments to the value of £50,553,000 (2017: £43,298,000), cash and cash equivalents, net of overdrafts, of £2,446,000 (2017: £7,559,000) and collateral account balances of £8,922,000 (2017: £3,143,000) were the only interest bearing financial instruments subject to variable interest rates at 31 December 2018. Therefore, if interest rates had increased/decreased by 50 basis points, with all other variables remaining constant, the change in the value of interest cash flows of these assets in the year would have been +/-£351,000 (2017: +/-£286,000).

	Fixed interest	Variable interest	Non-interest bearing	Total
31 December 2018	£'000	£'000	£'000	£'000
Financial assets
Investments at fair value through profit or loss	22,145	50,553	11,693	84,391
Cash and cash equivalents	-	2,612	-	2,612
Collateral accounts for derivative financial instruments at fair value through profit or loss	-	8,922	-	8,922
Derivative financial assets at fair value through profit or loss	2,574	-	-	2,574
Other receivables	-	-	1,293	1,293
	------------	------------	------------	------------
Total financial assets	24,719	62,087	12,986	99,792
	------------	------------	------------	------------

Financial liabilities
Bank overdrafts	-	(166)	-	(166)
Derivative financial liabilities at fair value through profit or loss	(19,955)	-	(1,329)	(21,284)
Short positions covered by sale and repurchase agreements	-	(1,451)	-	(1,451)
Other payables and accruals	-	-	(704)	(704)
	------------	------------	------------	------------
Total financial liabilities	(19,955)	(1,617)	(2,033)	(23,605)
	------------	------------	------------	------------
Total interest sensitivity gap	4,764	60,470	10,953	76,187
	------------	------------	------------	------------

31 December 2017
Financial assets
Investments at fair value through profit or loss	24,170	43,298	6,990	74,458
Cash and cash equivalents	-	16,808	-	16,808
Collateral accounts for derivative financial instruments at fair value through profit or loss	-	3,143	-	3,143
Derivative financial assets at fair value through profit or loss	1,987	-	59	2,046
Other receivables	-	-	650	650
	------------	------------	------------	------------
Total financial assets	26,157	63,249	7,699	97,105
	------------	------------	------------	------------

Financial liabilities
Bank overdrafts	-	(9,249)	-	(9,249)
Derivative financial liabilities at fair value through profit or loss	(6,514)	-	(444)	(6,958)
Short positions covered by sale and repurchase agreements	-	-	(838)	(838)
Other payables and accruals	-	-	(713)	(713)
	------------	------------	------------	------------
Total financial liabilities	(6,514)	(9,249)	(1,995)	(17,758)
	------------	------------	------------	------------
Total interest sensitivity gap	19,643	54,000	5,704	79,347
	------------	------------	------------	------------

It is estimated that the fair value of the capital instruments at 31 December 2018 would increase/decrease by +/-£277,000 (0.33%) (2017: +/-£486,000 (0.65%)) if interest rates were to change by 50 basis points.

The Investment Manager manages the Company's exposure to interest rate risk, paying heed to prevailing interest rates and economic conditions, market expectations and its own views as to likely movements in interest rates.

Although it has not done so to date, the Company may implement hedging and derivative strategies designed to protect investment performance against material movements in interest rates. Such strategies may include (but are not limited to) interest rate swaps and will only be entered into when they are available, in a timely manner, and on terms acceptable to the Company. The Company may also bear risks that could otherwise be hedged where it is considered appropriate. There can be no certainty as to the efficacy of any hedging transactions.

Credit risk

Credit risk is the risk that a counterparty to a financial instrument will fail to discharge an obligation or commitment that it has entered into with the Company, resulting in a financial loss to the Company.

At 31 December 2018, credit risk arose principally from investment in capital instruments of £81,341,000 (2017: £72,113,000), cash and cash equivalents of £2,612,000 (2017: £16,808,000), balances held as collateral for derivative financial instruments at fair value through profit or loss of £8,922,000 (2017: £3,143,000) and investment in sale and repurchase assets of £2,386,000 (2017: £894,000). The Company seeks to trade only with reputable counterparties that the Investment Manager believes to be creditworthy.

The Investment Manager manages the Company's credit risk by investing in a diverse portfolio of capital instruments, in line with the Prospectus. At 31 December 2018, the capital instrument rating profile of the portfolio was as follows:

	31 December 2018	31 December 2017
	Percentage	Percentage
A	5.69	4.76
BBB	34.14	32.69
BB	39.14	36.74
B	14.65	13.53
Below B	6.38	4.77
No rating	-	7.51
	------------	------------
	100.00	100.00
	------------	------------

The cash pending investment may be held without limit with a financial institution with a credit rating of A-1 (Standard & Poor's) or P-1 (Moody's) to protect against counterparty failure.

The Company may implement hedging and derivative strategies designed to protect against credit risk. Such strategies may include (but are not limited to) credit default swaps and will only be entered into when they are available in a timely manner and on terms acceptable to the Company. The Company may also bear risks that could otherwise be hedged where it is considered appropriate. There can be no certainty as to the efficacy of hedging transactions.

Due to the Company's investment in credit default swap agreements the Company is exposed to additional credit risk as a result of possible counterparty failure. The Company has entered into ISDA contracts with Credit Suisse, JP Morgan and Goldman Sachs, rated A, A+ and A+ respectively. At 31 December 2018, the overall net exposure to these counterparties was 11.57% (2017: 5.44%) of NAV. The collateral held at each counterparty is disclosed in note 16.

Liquidity risk

Liquidity risk is defined as the risk that the Company will encounter difficulties in realising assets or otherwise raising funds to meet financial commitments. The principal liquidity risk is contained in unmatched liabilities. The liquidity risk at 31 December 2018 was low since the ratio of cash and cash equivalents (net of overdrafts) to unmatched liabilities was 3:1 (2017: 11:1).

In addition, the Company diversifies the liquidity risk through investment in capital instruments with a variety of maturity dates, as follows:

	31 December 2018	31 December 2017
	Percentage	Percentage
Less than 1 year	4.00	1.16
1 to 3 years	24.30	13.79
3 to 5 years	38.56	51.74
5 to 7 years	15.15	6.95
7 to 10 years	8.80	11.82
More than 10 years	9.19	14.54
	------------	------------
	100.00	100.00
	------------	------------

As at 31 December 2018, the Company's liquidity profile was such that 75.1% of investments were realisable within one day (2017: 80.8%). The remaining 24.9% was realisable within one week (2017: 18.5% within one week and the final 0.7% within one month).

As at the year end, the Company's liabilities fell due as follows:

	31 December 2018	31 December 2017
	Percentage	Percentage
1 to 3 months	43.93	86.72
3 to 6 months	-	-
6 to 12 months	0.61	-
1 to 3 years	10.42	-
3 to 5 years	45.04	13.28
	------------	------------
	100.00	100.00
	------------	------------

25. Capital management policy and procedures

The Company's capital management objectives are:

· to ensure that it will be able to meet its liabilities as they fall due; and

· to maximise its total return primarily through the capital appreciation of its investments.

Pursuant to the Company's Articles of Incorporation, the Company may borrow money in any manner. However, the Board has determined that the Company should borrow no more than 20% of direct investments.

The Company uses sale and repurchase agreements to increase the gearing of the Company. As at 31 December 2018 the Company had ten open sale and repurchase agreements, two being reverse sale and repurchase agreements, committing the Company to make a total repayment of £17,341,000 post the year end (2017: £6,336,000). As a result of the reverse sale and repurchase agreement the Company was due to receive £2,386,000 after the year end (2017: £894,000).

The raising of capital through the ongoing placing programme forms part of the capital management policy. See note 21 for details of the Ordinary Shares issued since incorporation.

As disclosed in the Statement of Financial Position, at 31 December 2018 the total equity holders' funds were £76,976,000 (2017: £79,364,000).

26. Capital commitments

The Company holds a number of derivative financial instruments which, by their very nature, give rise to capital commitments post 31 December 2018. These are as follows:

· At 31 December 2018, the Company had sold 17 (2017: 16) credit default swap agreements for a total of £2,023,000 (2017: £1,489,000), each receiving quarterly interest. The exposure of the Company in relation to these agreements at the year end date was £2,023,000 (2017: £1,489,000). Collateral of £8,205,000 for these agreements was held at 31 December 2018 (2017: £3,034,000).

· At the year end the Company had committed to three (2017: two) foreign currency forward contracts dated 16 January 2019 to buy £46,457,000 (2017: £50,838,000). At 31 December 2018, the Company could have affected the same trades and purchased £47,786,000 (2017: £51,228,000), giving rise to a loss of £1,329,000 (2017: loss of £390,000).

· At the year end, the Company held eight (2017: three) open sale and repurchase agreements (this excludes the two open reverse sale and repurchase agreements) committing the Company to make a total repayment of £17,006,000 (2017: £6,340,000).

· At 31 December 2017, the Company had taken a long position maturing on 29 March 2018, committing the Company to a purchase of a gilt future for £3,109,000.

27. Contingent assets and contingent liabilities

In line with the terms of the Investment Management Agreement, as detailed in note 8a, should the Company's NAV reach a level at which the TER reduced to less than 1.5% of the average NAV in a future accounting period then the Quarterly Expenses Excess and Annual Expenses Excess totalling £723,000 at 31 December 2018 (2017: £464,000) would become payable to the Investment Manager, to the extent that the total expenses including any repayment did not exceed 1.5% of the average NAV for that period.

For the £723,000 (2017: £464,000) Expenses Excess to become payable, based on the 2018 expense level, the Company's NAV would need to increase by at least 78% from the 31 December 2018 NAV (2017: 34% from the 31 December 2017 NAV). The Directors consider that it is possible, but not probable, that this ratio will be achieved in the foreseeable future. Accordingly, the possible payment to the Investment Manager has been treated as a contingent liability in the financial statements.

There were no other contingent assets or contingent liabilities in existence at the year end.

28. Events after the financial reporting date

On 16 January 2019, the Company declared a dividend of 1.50p per Ordinary Share for the period from 1 October 2018 to 31 December 2018, which (in accordance with IFRS) was not provided for at 31 December 2018, out of the profits for the year ended 31 December 2018 (note 6). This dividend was paid on 22 February 2019.

On 4 February 2019, the Company raised gross proceeds of £5.94 million through the placing of 6,400,880 new Ordinary Shares of no par value. The Ordinary Shares were issued at a price of 92.81p per new Ordinary Share.

-- ENDS --

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.

END

FR SSMFUDFUSEEL

Companies

Axiom European Financial Debt Fund Limited (AXI)

Friday, 20th December 2024

COMPANIES COVERED:

SRP NMT RPI

Serco extends Thursday’s gains as upbeat mood prevails and Raspberry Pi also advances off the back of stake building news, but Neometals under pressure as it plans cancellation of AIM listing to focus on ASX.

Full Archive

UK 100

Latest directors dealings

2 days ago The Renewables Infrastructure Group Limited
2 days ago The Renewables Infrastructure Group Limited
2 days ago Smurfit Westrock (DI)
2 days ago Menhaden Resource Efficiency
2 days ago BP

All directors dealings today