Half-year Report

RNS Number : 5965H

Axiom European Financial Debt Fd Ld

19 August 2016

 

19 August 2016

Axiom European Financial Debt Fund Limited
Results for the period from 7 October 2015 (date of incorporation) to 30 June 2016
Highlights
				30 June 2016 (unaudited)
Net assets attributable to Ordinary Shares				£50,319,000
Net asset value ("NAV") per Ordinary Share				92.02p
Share price at 30 June 2016				95.50p
Premium to NAV				3.78%
Loss for the period [1]				£(2,166,000)
Dividend per Share declared in respect of the period				2.85p
Total return per Ordinary Share (based on NAV)				-4.70%
Total return per Ordinary Share (based on Share price)				-3.15%
[1]	Only 1.35p of the 2.85p per Ordinary Share dividends declared for the period ended 30 June 2016 has been paid.  The dividend of 1.50p per Ordinary Share announced on 19 July 2016, payable to shareholders on record at 5 August 2016, and which will be paid on 26 August 2016, has not been paid or provided for in these financial statements as at 30 June 2016 as, in accordance with IFRS, it was not deemed to be liability of the Company at that date.
For further information please visit www.axiom-ai.com
Elysium Fund Management Limited PO Box 650 1st Floor Royal Chambers St Julian's Avenue St Peter Port Guernsey GY1 3JX [e-mail] Tel: [phone]		Liberum Capital Limited Level 12, Ropemaker Place 25 Ropemaker Street London EC2Y 9LY Richard Bootle Henry Freeman Tel: [phone]	MHP Communications 6 Agar Street London WC2N 4HN Reg Hoare Giles Robinson Ollie Hoare Tel: [phone]

CHAIRMAN'S STATEMENT

This is the first half-yearly report since the Company was launched in November 2015. It was a challenging period, with the market falling sharply in February, as explained in the Investment Manager's Report, before recovering somewhat and ending with the unexpected outcome of the Brexit vote towards the end of June.  Against this unhelpful background, the Company generated a relatively small loss of 4.1% of the capital raised (net of issue costs of 2.0%). In this environment, the Company's managers performed creditably and they give a detailed insight into their management of the Company's portfolio and the market influences in the Investment Manager's Report. Results The Company reported a net loss after tax for the period ended 30 June 2016 of £2.2 million, representing a loss per Ordinary Share of 4.11p.  This loss comprised a revenue profit of £1.5 million and a capital loss on investments and foreign exchange of £3.7 million.  The Company's non-Sterling investments are fully hedged.  The Company's portfolio is liquid with approximately 80% capable of being realised within ten days in normal market circumstances.  The liquidity risks arising from the hedging policy are therefore considered to be low. The Company's NAV at 30 June 2016 was £50.3 million (92.02p per Ordinary Share). From listing until 30 June 2016, the Company's shares traded at an average price of 95.96p per Ordinary Share, with a price of 95.50p at 30 June 2016 - a premium of 3.8% to NAV. Placings On 3 November 2015 the Company issued 50,737,677 Ordinary Shares for £1 each, raising proceeds of £50.74 million.  On 5 November 2015, the Company's IPO was successfully completed and its Ordinary Shares were admitted to trading on the Specialist Fund Segment (formerly known as the Specialist Fund Market) of the London Stock Exchange. Notwithstanding the challenging markets, the Company was able to grow its capital base incrementally with a modest placing of 3,945,555 new Ordinary Shares at 90.00p per new Ordinary Share to raise £3.55 million gross proceeds at a small premium to the then prevailing NAV in early March. Borrowings The Company uses sale and repurchase agreements to increase the gearing of the Company.  As at 30 June 2016 the Company had three open sale and repurchase agreements committing the Company to make a total repayment of £2,515,000 including interest of £2,000 post the period end.  This compares to shareholder funds of £50,319,000 as at the period end.  Further details are set out in notes 17 and 20 of the financial statements.  Dividends 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 is seeking to pay dividends totalling at least 6.00p per share in respect of the period from Admission to 31 December 2016.  During the period the Company declared and paid two dividends totalling 1.35p per share and a further dividend of 1.50p per share was declared on 19 July 2016.  With the payment of further dividends in October and January, the Company is on track to meet this intention.

Outlook There is still much work to do in the European financial industry to reorganise liability structures to meet new regulatory rules even if the overall capital requirements have stabilised for now, according to the European Central Bank ("ECB").  Brexit may, in time, lead to divergence in regulatory capital regimes between the UK and the European Union and may create additional investment and trading opportunities.  However, in a process which is yet to start, it is too early to say precisely what these opportunities will be or when they will present themselves.  New instruments will still be issued and legacy ones retired. Some individual banks are yet to complete their balance sheet clean-up.  The opportunity set for investment in regulatory capital instruments described in our Prospectus remains as rich as it was then and the Company having weathered this heightened volatility now represents  a compelling value proposition for investors looking at the banking sector.  We look forward to exploiting the opportunities presented by the regulatory transition process with a skilled and specialist manager.

William Scott 18 August 2016

INVESTMENT MANAGER'S REPORT

Axiom European Financial Debt Fund Limited (AEFD) was launched on 5 November 2015; following a successful listing on the Specialist Fund Segment of the LSE raising gross proceeds of £50.7 million.  On 4 March 2016 additional gross proceeds of £3.55 million were raised in a secondary placing. 1- Market developments The first month provided a relatively benign environment.  After a strong reporting season showing more capital build-up and asset quality improvements, the banking sector had received clean bills of health both by the European Single Supervisor with its 2015 Asset Quality Review and the UK Prudential Regulation Authority with its stress tests. Mid-December 2015 saw the start of market volatility when banks were notified of new capital requirements under the Supervisory Review and Evaluation Process ("SREP").  Italian banks were the first under scrutiny, in particular those with high Non Performing Loan ("NPL") ratios.  The focus moved quickly to companies with large balance sheets in core EU countries, such as BNP Paribas, and investor confidence took a further hit with the decision by the Bank of Portugal on 29 December 2015 to re-transfer senior bonds back to Banco Espirito Santo. With this challenging regulatory backdrop, Q1 2016 proved to be a perfect storm for bank valuations as investors expressed further caution in the wake of low oil prices, Chinese economic slowdown, potential US rate hikes and EU uncertainty from the UK's pending referendum.  Despite strong capital updates from banks like Crédit Agricole, the earnings season showed how banks struggled to maintain revenues and how costs, whether operational, conduct-related or regulatory, ultimately dragged down the profitability outlook. In addition to NPLs, investors added negative interest rates to the list of concerns for the sector.  Investor sentiment was hit further when very negative headlines were reported about Deutsche Bank and the risks of its business model. The segment that suffered the most was the Additional Tier 1 ("AT1") market which fell to an all-time low on 11 February 2016.  This new format of hybrids was impacted by the combination of disappointing updates in their results from banks including Société Générale and Royal Bank of Scotland, and an increasing awareness of investors towards the regulatory risk attached to the coupon payments. Regulatory authorities tried to alleviate investor concerns themselves.  Mrs Nouy, Chair of the Supervisory Board at the ECB, reiterated that banks could count on capital requirements staying at current levels as the regulatory requirements have reached "steady state".  At the end of February, in a remarkable initiative of disclosure and transparency, the ECB published a booklet detailing its approach towards go-to capital ratios and organised a Q&A session with analysts, where it suggested a change to the legislation, in particular Article 141 that defines the restrictions on Maximum Distributable Amounts under the new Capital Requirements Directive. The market reaction was subdued with AT1 valuations gaining back only half of what they had lost, while UK banks were dragged down by the launch of the UK's EU Leave and Remain campaigns following  Prime Minister Cameron's revised EU deal. In March 2016 financial institutions saw a number of positive developments. In the Netherlands, Delta Lloyd's €650 million rights issue was approved. In the UK, Old Mutual confirmed the break-up of the group. In Italy, Popolare and Milano finally agreed on their merger after lengthy negotiations with the ECB and Vicenza started its equity raise.  At the instrument level, issuers launched opportunistic tenders (Barclays, Standard Chartered, Crédit Agricole), called at their first call date (BNP Paribas), and re-opened the primary market for AT1s (UBS). The real support came on 10 March 2016 from Mario Draghi himself when he spontaneously referred to a note from the ECB, in his closing comments of a press conference.  This note, prepared for the Banking Union in discussion with the European Parliament, recommends a favourable treatment of AT1s relative to dividends and bonuses, alongside a split of capital demands between requirement (mandatory) and guidance (non-binding). In April and May 2016, the Q1 results season was mixed as weaker revenues were offset by lower loan losses and further capital strengthening.  However, the sentiment towards the banking sector improved as oil prices rebounded above US$50 per barrel, Brexit risks receded in polls, and Italy launched Atlante, its sector-wide fund set up for smaller bank recapitalisations and securitisation of non-performing loans, with €4.25 billion in private sector capital.

On the back of this, five new AT1 deals printed (Rabobank, BBVA, Bankinter, HSBC, Erste Bank) and, in a surprisingly coordinated manner, Global Systemically Important Banks announced a series of calls (Santander UK, Barclays, UBS, RBS, HSBC) and tenders (Unicredit).  Finally, in reaction to the regulatory pressure on NPLs, Banco Popular announced a surprise €2.5 billion capital raise. The month of June 2016 saw investors polarised on political risk: in the UK, with the polls driving an ever increasing uncertainty closer to the Brexit vote date, in Spain where the new round of elections failed to deliver a majority, and in Italy investors look towards the Italian constitutional referendum in October 2016.  At the end of the month bank valuations across the UK and EU dropped sharply on the back of British voters choosing to leave the EU.  Notwithstanding these risks, bank fundamentals saw significant improvements with successful capital raises of Banco Popolare and Veneto Banca and more liability management exercises from Lloyds, Novo banco and Pfandbriefbank. 2- Investment Strategy AEFD is a closed-ended fund investing in liabilities issued by European financial institutions, predominantly legacy Tier 1s, Tier 2s, and Additional Tier 1s 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- Fund deployment On the day following the listing, AEFD deployed 40% of its capital across the full range of its strategies (including 22% in  the Liquid Relative Value strategy).  This increased to 82%, as of 30 November 2015, deployed across 40 instruments. Prior to launch, the Investment Manager guided that it would invest predominantly in the Liquid Relative Value strategy and re-allocate over a six-month period into opportunities in the other strategies.  However, given the uncertainty on capital rules mostly affecting AT1s, the Investment Manager reduced the portion of Liquid Relative Value instruments (consisting essentially of AT1s) and kept it high in the second quarter to benefit from the price normalisation.  See below the chart showing the ramp-up as realised (dotted lines) vs. intended (squares). 1st Month 2nd Month 4th Month 6th Month Liquid Relative Value 80% 49% 50% 53% 30% 50% 25% 37% Less Liquid Relative Value 5% 16% 15% 21% 25% 25% 30% 27% Restructuring 5% 10% 10% 13% 15% 14% 15% 16% Special Situations 5% 5% 10% 5% 15% 6% 15% 9% Midcap Origination 5% 4% 10% 4% 15% 5% 15% 4% Number of Positions 40 53 66 72 Allocation Strategies Phase-in Period Target portfolio Source: AEFD Monthly Fact Sheets.

4- Trading activity November 2015: ramping up cautiously The Company continued its ramp-up on less liquid instruments including fixed-to-fixed Tier 1s (6% of capital) and two bonds recently issued by Irish banks (3% of capital).  A strong position was also built on Delta Lloyd old-style Tier 2 bonds (5%) ahead of its capital increase.  This position was reduced to 3.5% after contributing 0.15p to the NAV. December 2015: volatility begins The Company completed its ramp-up by adding 4% of UK AT1s and 2% of Italian sub debt, benefiting from the lower valuations.  Still the correction impacted negatively on positions held in Italian old style Tier 1s and Tier 2s, which reduced the NAV by 0.18p. Positions held on insurers gave back some of their recent gains, negatively impacting the NAV by 0.3p.  In Portugal, the Company took some marginal exposures in seniors and  legacy Tier 1s across three issuers that negatively impacted the NAV by 0.85p overall. The Company invested in legacy Tier 1s less prone to the increasing market volatility: one step-up floater issued by Société Générale offering more than 8% to the call in 2017, and one old-style UK "Permanent Interest Bearing Shares" instrument offering more than 13% to its call in 2017. January 2016: Lightening up into sell-off While the Company started the month 97% invested, early in the month it sold some of its most liquid positions: ·      4% in the 1st week: Société Générale 6.75 AT1 at 102.71 and LivVic 6.5 2043-23 at 99.00; ·      4% in the 2nd week on Irish banks: Bank of Ireland AT1 at 103.75 and AIB T2 at 99.25; and ·      3% in the 3rd week: KBC AT1 and Erste Bank T1 (with accrued). Meanwhile the Company continued the sourcing of legacy Tier 1s and bought Italian subordinated bonds at all-time lows benefiting from the market overreaction to NPL concerns in the sector. The Company did not hold any instruments issued by Deutsche Bank. February 2016: Seeking opportunities into historical stress The Company started the month with 6% cash which was fully deployed over the month. In the first two weeks, it bought selectively AT1s at historically low prices: BNP Eur AT1 below 90.00, Santander Eur AT1 at 82.25, AIB Eur AT1 at 84.50. Less Liquid Relative Value:  the Company bought Credit Logement legacy Tier 1s, after a 10pt drop, some legacy Tier 1 issued by PostBank at 11% yield to call; some high coupon hybrid by Banca Popolare di Milano; and very short dated Tier 2 by Carige. Restructuring: it trimmed down senior exposures to small Popolari banks raising capital in Italy (Veneto Banco and Vicenza), realising gains from the entry levels in mid-January. Towards the end of the month, it reduced its exposure to UK AT1s before Brexit concerns were priced in, selling some Coventry Building Society and Nationwide AT1s. March 2016: Positioning into the rebound In the Liquid Relative Value strategy, the Company bought higher beta AT1s (UniCredit 8, Deutsche Bank 6) ahead of the ECB press conference and sold bonds in Old Mutual and Delta Lloyd after their capital updates.  It also added AT1s with dividend stoppers (CS and new UBS) as defensive plays pending new legislation around AT1 format. In the Less Liquid Relative Value strategy, the Company reduced exposure to UniCredit Cashes in front of adverse technicals and sourced further Société Générale step-up floaters as well as a new RBS fixed-to-fixed US$ Tier 1 position. The Company also built a small (1%) position on a BNP Paribas non-step £ legacy Tier 1 whose call was just announced (bought at 96.10 and sold at 100.25).

In the Restructuring strategy, the Company added slightly more exposure to Monte dei Paschi legacy non-paying Tier 1s at distressed level (38.00 cash price). April 2016: maximising exposure The Company continued its ramp-up towards the other less liquid strategies while remaining exposed to the AT1 segment, ahead of the upcoming change to coupon rules. ·      Liquid Relative Value: the Company sold down its remaining positions on Old Mutual and Delta Lloyd to increase its exposure to AT1s. On 12 April 2016, the Company bought AT1s issued by BNP, Santander, Bank of Ireland and AIB. It added more AIB AT1s, dismissing the whistleblower's warning about NPL write-backs, and new BBVA 8.875 and Rabobank 6.625 at levels that discounted heavily any extension risk. ·      Less Liquid Relative Value: the Company's allocation in the new Bankinter 8.625 AT1 went under this sub-strategy given the small outstanding amount (€200 million). It also bought discounted UBS Prefs and RBS Fixed-to-Fixed instruments ahead of potential liability management exercises.  To fund these purchases, it sold some of its BFCM CMS position because of its longer-term catalyst. ·      Restructuring: the Company sold its Monte dei Paschi Tier 2 position at 92.50 (bought at 65.00 in January) and started trimming down exposures to Popolari di Vicenza into the launch of its capital increase and the Atlante announcements.  It replaced these exposures with rare short-dated BCP Tier 2s sourced at 87.00 from a liquidation auction. The Company ended the month with 1% cash, with the capacity to borrow 5% at short notice. May 2016: when expected calls happened ·      Liquid Relative Value: the Company took part in the new Erste Bank AT1 but passed on HSBC for relative value considerations.  Four large AT1 positions were sold in the final week of the month where the valuations reached their peaks taking the sub-strategy down from 45% to 42%. ·      Less Liquid Relative Value: the Company added on three fixed-to-fixed instruments and lightened up on a legacy Tier 1 above par. It benefited strongly from two calls.  The first one on UBS discounted Prefs saw valuations jumping from 65.00 to 100.00 and the second one on HSBC from 89.00 to 100.40 overnight, contributing 0.56p into the NAV. ·      Restructuring: the Company sold its residual position on Vicenza following the completion of the capital raise and switched it partly into Veneto Banca.  It bought some Banco Popular legacy Tier 1 early in the month and later sold its Banco Popular AT1 position on the announcement of the capital raise.

June 2016: preparing for all political outcomes The Company started the month with 7% cash and increased the cash position to 13% ahead of the Brexit vote. Liquid AT1s stood at 36%, stable vs. end of May, down from 48% at the end of April, and the portion of UK AT1s was limited to 8.5%.  At the end of the Brexit week, the NAV dropped by 1.22%. Activity across sub-strategies was as follows: ·      Liquid Relative Value: the Company bought a defensive position in Tier 2s, in anticipation of a potential capital increase. ·      Less Liquid Relative Value: a position in Banca Carige Tier 2 matured and two positions, Spanish AT1 and Italian legacy Tier 1, were sold, both above par. ·      Special Situations: the Company bought a hybrid instrument issued by an insurance holding in the process of splitting its group entities. ·      Restructuring: the Company bought two legacy Tier 1s issued by two banks under stress in Italy and Germany. The Company ended the month with 6% cash.

5- Portfolio (as at 30 June 2016) Strategy Allocation (as a % of investments held) Liquid Relative Value 37% Less Liquid Relative Value 27% Restructuring 16% Special Situations 9% Midcap Origination 4% Cash 6% Denomination (as a % of investments held, excluding cash) EUR 36% GBP 22% USD 20% DKK 2% Portfolio Breakdown (as a % of non-cash investments held, excluding cash) By rating By subordination A 0.4% Legacy Tier 1 45% BBB 18% Additional Tier 1 41% BB 49% Tier 2 13% B 20% Senior 1% <B 12% By maturity By country <1 year 14% UK 29% 1-3 20% France 19% 3-5 28% Italy 11% 5-7 12% Spain 9% 7-10 18% Ireland 7% >10 8% Austria 7% Germany 7% Denmark 5% Portugal 4% Netherlands 2% Belgium 1%

Main Positions (top ten) Instruments Strategy % of NAV RBS Capital Trust $6.8 Perp-03/2008 Less Liquid Rel. Val. 4.42% Société Générale $L+75 Perp-04/2017 Less Liquid Rel. Val. 4.37% Credit Agricole £7.5 Perp-06/2026 Liquid Relative Value 3.57% Barclays PLC £7 Perp-06/2019 Liquid Relative Value 3.51% Lloyds Bank PLC £11.75 Perp Less Liquid Rel. Val. 3.50% UniCredit SpA Eur 6.75 Perp-09/2021 Liquid Relative Value 3.35% Hypo RE Intl Trust 5.864 Perp-06/2017 Liquid Relative Value 3.24% Fortis Eur+200 Perp Special Situations 3.23% RBS Group PLC Eur 5.5 Perp-12/2009 Less Liquid Rel. Val. 3.05% Lloyds $6.85 Perp-03/2009 Less Liquid Rel. Val. 2.97% Sub-strategy Yield-to-Maturity Yield-to-Call Liquid Relative Value 7.00% 9.47% Less Liquid Relative Value 5.59% 8.41% Restructuring 6.72% 17.40% Special Situations 7.22% 19.23% Midcap Origination 10.04% 9.02% Total Portfolio 7.51% 12.13%

6- Company metrics Accounting data Portfolio information Net assets: 50,318,872.06 Modified duration*: 2.9 NAV per share (GBp): 92.02 Sensitivity to credit: 3.7 Net gearing 109.2% Positions: 72 Share price (mid): 95.50 Yield to call*: 12.1% (Discount) / Premium 3.78% Yield to perpetuity*: 7.5% As of 30 June 2016: *"Modified duration" measures the sensitivity of bond prices to interest rates. "Sensitivity to credit" measures the sensitivity of bond prices to credit spreads. "Yield to call" is the yield of the portfolio at the expected repayment date of the bonds. "Yield to perpetuity" is the yield of the portfolio assuming that securities are not repaid but kept outstanding to perpetuity. Performance - Total Shareholder Return (NAV plus dividends, per share) 1 month 3 months 6 months YTD 1 year 3 years Since inception -1.94% 1.78% -3.48% -3.48% n.a. n.a. -4.72% Monthly Performance - Total Shareholder Return (NAV plus dividends, per share) Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Annual perf. 2015 - - - - - - - - - - 0.19% -1.48% -1.29% 2016 -4.02% -4.59% 3.56% 1.16% 2.61% -1.94% - - - - - - -3.48% 7- 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

8- Outlook The recent volatility in the banking sector shows how the transition to the new regulatory framework is still taking time. Issuers, investors and also newly-empowered supervisors have to learn how to deal with capital instruments, in both old and new formats. This continues to create an environment that offers significant opportunities for the Company, in particular through renewed periods of volatility. Overall, our outlook remains constructive on the European banking sector, despite uncertainties related to macroeconomic environment or political stability.  In the short term, we expect prices to continue to normalise as authorities coordinate their use of new regulatory tools in the restructuring process of banking sectors across Europe, as we see in Italy and Austria. In the medium term, we expect some significant forbearance from the ECB as it moves from capital requirements to softer capital guidance for next year, giving more flexibility for coupon payments on hybrids to continue or resume. Finally, in the longer run, we expect new investors to continue to enter the AT1 market, especially in this environment of low rates for longer. We expect this to benefit the entire asset class, new formats as well as legacy instruments.

Gildas Surry 18 August 2016

Unaudited Condensed Statement of Comprehensive Income

for the period from 7 October 2015 (date of incorporation) to 30 June 2016

		From 7 October 2015 to 30 June 2016 (unaudited)
	Note	Total
		£'000
Income
Bond income		2,067
Credit default swap income		18
		----------
Total income		2,085
		----------
Investment gains and losses on investments held at fair value through profit or loss
Realised gains on disposal of bonds	9	71
Movement in unrealised gain on bonds	9	1,637
Realised losses on derivative financial instruments	12	(2,016)
Movement in unrealised loss on derivative financial instruments	12	(2,979)
		----------
Total investment gains and losses		(3,287)
		----------
Expenses
Investment management fee	6	(210)
Administration fee	6	(80)
Directors' fees	6	(62)
Broker fees	6	(49)
PR expenses		(43)
Depositary fees	6	(26)
Bank charges and interest		(26)
Audit fees		(14)
Other expenses		(56)
		----------
Total expenses		(566)
		----------
Loss from operating activities before gains and losses on foreign currency transactions		(1,768)
Loss on foreign currency		(385)
		----------
Net loss from operating activities after gains and losses on foreign currency transactions and before taxation		(2,153)
Taxation	7	(13)
		----------
Loss for the period attributable to the Owners of the Company		(2,166)
		----------
Loss per Ordinary Share - basic and diluted	8	(4.11)p
All of the items in the above statement are derived from continuing operations.
There was no other comprehensive income in the period.
The accompanying notes form an integral part of this announcement.

	Unaudited Condensed Statement of Changes in Equity
	for the period from 7 October 2015 (date of incorporation) to 30 June 2016
			Note	Share capital (unaudited)	Distributable reserves (unaudited)	Total (unaudited)
				£'000	£'000	£'000
Opening balance at 7 October 2015				-	-	-
Loss for the period from incorporation to 30 June 2016				-	(2,166)	(2,166)
Contributions by and distributions to owners
Share capital issued			15	-	54,289	54,289
Share issue costs				-	(1,080)	(1,080)
Dividends paid			5	-	(724)	(724)
				----------	----------	----------
At 30 June 2016				-	50,319	50,319
				----------	----------	----------
There was no other comprehensive income in the period.
The accompanying notes form an integral part of this announcement.

Unaudited Condensed Statement of Financial Position
as at 30 June 2016
	Note	As at 30 June 2016 (unaudited)
		£'000
Non-current assets
Investments in bonds at fair value through profit or loss	9	50,662
		----------
Current assets
Collateral accounts for derivative financial instruments at fair value through profit or loss	10	1,714
Other receivables and prepayments	11	815
Cash and cash equivalents		3,489
		----------
Total current assets		6,018
		----------
Total assets		56,680
		----------
Current liabilities
Derivative financial liabilities at fair value through profit or loss	12	(6,125)
Other payables and accruals	14	(236)
		----------
Total liabilities		(6,361)
		----------
Net assets		50,319
		----------
Share capital and reserves
Share capital	15	-
Distributable reserves		50,319
		----------
Total equity holders' funds		50,319
		----------
Net asset value per Ordinary Share: basic and diluted	16	92.02p

The accompanying notes form an integral part of this announcement.

Unaudited Condensed Statement of Cash Flows
for the period from 7 October 2015 (date of incorporation) to 30 June 2016
	Notes	From 7 October 2015 to 30 June 2016 (unaudited)
		£'000
Net cash outflow from operating activities
Net loss before taxation		(2,153)
Adjustments for:
Realised gain on bonds		(71)
Movement in unrealised gains on bonds		(1,637)
Realised loss on derivative financial instruments		2,016
Movement in unrealised loss on derivative financial instruments		2,979
Increase in operating assets:
Payment to collateral accounts for derivative financial instruments		(1,714)
Purchase of bonds	9	(85,517)
Sale of bonds	9	36,563
Increase in operating liabilities:
Premiums received from credit default swap agreements	12	634
Purchase of foreign currency derivatives	12	(73,920)
Closing of foreign currency derivatives	12	72,018
Net proceeds from purchase and closure of bond futures		34
Proceeds from sale and repurchase agreements	12	5,918
Payments to close out sale and repurchase agreements	12	(3,554)
		------------
Net cash outflow from operating activities before working capital changes		(48,404)
Increase in other receivables and prepayments		(815)
Increase in other payables and accruals		236
		------------
Net cash outflow from operating activities		(48,983)
Cash flows from financing activities
Proceeds from issue of Ordinary Shares		54,289
Share issue costs paid		(1,080)
Dividends paid		(724)
		------------
Net cash inflow from financing activities		52,485
Taxation paid		(13)
		------------
Increase in cash and cash equivalents		3,489
Cash and cash equivalents brought forward		-
		------------
Cash and cash equivalents carried forward		3,489
		------------

The accompanying notes form an integral part of this announcement.

Notes to the Results for the period from 7 October 2015 (date of incorporation) to 30 June 2016

1. General Information

The Company is an authorised closed-ended, non-cellular investment company domiciled and incorporated as a limited liability company on 7 October 2015 under the laws of Guernsey.  The registered office of the Company is PO Box 650, 1st Floor, Royal Chambers, St Julian's Avenue, St Peter Port, Guernsey, GY1 3JX. At the initial placing, on 3 November 2015 the Company issued 50,737,677 Ordinary Shares of no par value for £1 each, raising proceeds of £50.74 million. The Company's Ordinary Shares were admitted to trading on the Specialist Fund Segment of the London Stock Exchange on 5 November 2015. On 4 March 2016 the Company raised £3.55 million through the placing of 3,945,555 new Ordinary Shares of no par value.  The Ordinary Shares were issued at a price of 90p per share bringing the total number of Ordinary Shares in issue at the period end date to 54,683,222.

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 will seek 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 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 are the results of the Company for the period from 7 October 2015 (incorporation) to 30 June 2016.  These results have been prepared in accordance with the Disclosure and Transparency Rules of the Financial Conduct Authority and International Accounting Standard 34, Interim Financial Reporting, as adopted by the European Union. The results for the period ended 30 June 2016 have not been audited or reviewed by the Company's auditors and do not constitute statutory financial statements. They have been prepared on the same basis as will be used to prepare the Company's annual financial statements. These results were authorised for issuance by the Board of Directors on 18 August 2016.

b)  Basis of measurement These results have been prepared on a historical cost basis, except for investments, including derivative financial instruments, which are measured at fair value. These results have been prepared on a going concern basis (note 3i).

c) Functional and presentation currency These results are presented in Sterling, which is also the Company's functional currency as this is the currency of the primary economic environment within which the Company operates.  All financial information presented in Sterling has been rounded to the nearest thousand except when otherwise indicated.

d)  Use of judgements and estimates

Judgements made by the Directors in the application of International Financial Reporting Standards ("IFRSs") that have a significant effect on the results and estimates with a significant risk of material adjustment in the next year are discussed in note 3.

3. Use of judgements and estimates

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

Judgements

In the process of applying the Company's accounting policies, the Directors have made the following judgements, which have had the most significant effects on the amounts recognised in the results:

i) Going concern

After making reasonable enquiries, and assessing all data relating to the Company's liquidity, 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, these results have been prepared on a going concern basis.

Estimates and assumptions

The Company based its estimates on information available when the results 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 may impact any estimates used in the preparation of the accounts and are therefore reflected in the assumptions as and when they occur. 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.

i) Valuation of financial assets and liabilities

The Company relies on 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 reliance is placed on the Investment Manager to secure an independent valuation with reference to the latest prices traded within the market place.

ii)  Determination of functional currency

The performance of the Company is measured and reported to investors in Sterling.  The Directors consider Sterling to be the currency that most accurately represents the economic effects of the underlying transactions, events and conditions.

4.  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 compartmentalize 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.
5. Dividends
As stated in the Company's Prospectus, the Company is targeting a net total return on invested capital in excess of 10% per annum over a seven year period. Returns to Shareholders will predominantly comprise dividends. The Company intends to distribute all of its income from investments, net of expenses, by way of dividends on a quarterly basis, with dividends declared in January, April, July and October and paid in February, May, August and November in each year. 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 will seek to pay dividends totalling at least 6.00p per share in respect of the period from Admission to 31 December 2016.  The Company has declared the following dividends for the period from incorporation to 30 June 2016:
Announcement date	Pay date	Total dividend declared in the period	Dividend per Ordinary Share
		£'000
26 January 2016	26 February 2016	177	0.35p
25 April 2016	27 May 2016	547	1.00p
		------------
Total dividends declared and paid		724
19 July 2016	26 August 2016	820	1.50p
		------------
Total dividends declared		1,544
		------------
On 19 July 2016, the Company declared a dividend of 1.50p per Share, which will be paid on 26 August 2016.  This dividend was not provided for at 30 June 2016 as, in accordance with IFRS, the dividend payment was not deemed to be a liability of the Company at that date.

6. Related parties and 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 will be paid to the Investment Manager quarterly in arrears. The quarterly fee will be 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 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. During the period, a total of £210,000 was incurred in respect of Investment Management fees, of which £137,000 was payable at the reporting date. In addition, the Investment Manager was paid £183,000 for its work on the placings. Performance fee The Investment Manager shall be entitled to receive from the Company a performance fee subject to certain performance benchmarks. The fee will be payable as a share of Total Shareholder Return ("TSR") where TSR is defined as growth in NAV per share plus dividends per share paid. The performance fee, if any, will be equal to 15% of TSRs in excess of a hurdle equal to a 7% per annum cumulative return since Admission, compounded annually. The performance fee is subject to a high watermark. The fee, if any, will be payable annually and calculated on the basis of audited annual accounts. 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. Any applicable VAT will be paid in cash. During the period, no performance fee was incurred by the Company and there was no balance accrued at the period end date.

b)  Administrator and Company Secretary

Elysium Fund Management Limited has been appointed by the Company to provide day to day administration services to the Company, to calculate the NAV per Share on a weekly basis and to provide company secretarial functions required under the Companies 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 shall pay the Administrator a time-based fee for any work undertaken in connection with the calculation of the weekly NAV, up to a maximum of £400 per NAV calculation, subject to a maximum aggregate amount of £10,000 per annum. The Administrator was also paid a one-off establishment fee of £25,000 on Admission. During the period, a total of £80,000 was incurred in respect of Administration fees, of which £31,000 was payable at the reporting date.

c)  Broker

Liberum Capital Limited ("Liberum") has been appointed to act as Corporate Broker ("Broker") for the Company.  In consideration of Liberum agreeing to act as Broker the Company pays Liberum an annual retainer fee of £75,000 per annum, paid equally in two instalments on 1 January and 1 July each year.  For the period from incorporation to 30 June 2016, the Company had paid £49,000 in respect of Brokers fees.  At the period end date there was no outstanding balance due to or from Liberum. In addition, Liberum was paid £287,000 for its work on the placings.

d)  Registrar

Capita Registrars (Guernsey) Limited has been appointed 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 period, a total of £12,000 was incurred in respect of Registrar fees, of which £2,000 was payable at the reporting date.

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 £12,000 was incurred in respect of depositary fees, of which £7,000 was payable at the reporting date.

CACEIS Bank Luxembourg is entitled to receive a monthly fee from the Company in respect of the provision of certain accounting services which will, subject to a minimum monthly fee of €1,800, be calculated by reference to the following sliding scale: i.      where NAV is less than or equal to €50 million, 0.04% per annum of NAV; ii.    where NAV is greater than €50 million but less than or equal to €100 million, 0.03% per annum of NAV; and iii.   where NAV is greater than €100 million, 0.02% per annum of NAV, in each case, plus applicable VAT. During the period, a total of £14,000 was incurred in respect of fees paid to CACEIS Bank Luxembourg, of which £3,000 was payable at the reporting date.

f)  Directors' remuneration

Bill 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 period, a total of £62,000 was incurred in respect of Directors' fees, of which £24,000 was payable at the reporting date.

7. 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 for the exemption of £1,200 per annum. The Company has a number of investments in bonds issued in Italy. The Company is a Guernsey registered Company, and any income received on Italian bonds suffers Italian withholding tax at 26%.  In addition, Italian withholding tax is calculated, by the Depositary, and either charged or received on the purchase or sale of bond interest bought or sold with bonds at a rate of 26%. During the period ended 30 June 2016, the Company suffered a total of £13,000 in relation to Italian withholding tax.

8.  Loss per Ordinary Share

The loss per Ordinary Share of 4.11p is based on a loss of £2,166,000 and on a weighted average number of 52,702,190 Ordinary Shares in issue since Admission.  There is no difference between the basic and diluted earnings per share.

9.  Investments in bonds at fair value through profit or loss
			Period from incorporation to 30 June 2016 (unaudited)
			£'000
Balance as at 7 October 2015 (date of incorporation)			-
Additions in the period			85,517
Sales in the period			(36,563)
Movement in unrealised gains in the period			1,637
Movement in realised gains in the period			71
			----------
Balance as at 30 June 2016			50,662
			----------
Closing book cost			49,025
Closing unrealised  gain on bonds at fair value through profit or loss			1,637
			----------
Closing valuation			50,662
			----------

10.  Collateral accounts for derivative financial instruments at fair value through profit or loss
			30 June 2016 (unaudited)
			£'000
CACEIS Bank France			116
Goldman Sachs International			1,598
			----------
Total collateral held by brokers			1,714
			----------

11.  Other receivables and prepayments
			30 June 2016 (unaudited)
			£'000
Accrued bond interest receivable			798
Interest due on credit default swaps (note 12)			4
Other receivables and prepayments			13
			----------
Total receivables and prepayments			815
			----------

12.  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.  While there is no credit event, the protection buyer pays the protection seller a quarterly fixed premium.  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.
			Period from incorporation to 30 June 2016 (unaudited)
			£'000
Balance as at 7 October 2015 (date of incorporation)			-
Premiums received			(634)
Movement in unrealised losses in the period			(141)
			----------
Outstanding liability due on credit default swaps as at 30 June 2016			(775)
			----------
Interest paid or received on the credit default swap agreements has been accounted for in the Unaudited Condensed Statement of Comprehensive Income as it has been incurred or received.  At the period end, £4,000 of interest on credit default swap agreements was due to the Company.

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 a negotiated forward exchange rate.
			Period from incorporation to 30 June 2016 (unaudited)
			£'000
Balance as at 7 October 2015 (date of incorporation)			-
Purchase of foreign currency derivatives			73,920
Closing of foreign currency derivatives			(72,018)
Movement in unrealised losses in the period			(2,840)
Realised losses in the period			(1,902)
			----------
Total liabilities on foreign currency forwards as at 30 June 2016			(2,840)
			----------

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.
			Period from incorporation to 30 June 2016 (unaudited)
Balance as at 7 October 2015 (date of incorporation)			-
Net purchase and sale of bond futures			(34)
Movement in unrealised gains in the period			92
Realised losses in the period			(53)
			----------
Balance receivable on bond futures as at 30 June 2016			5
			----------

Sale and Repurchase agreements
Under the terms of a sale and repurchase agreement ("repo") 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 repo.  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.
			Period from incorporation to 30 June 2016 (unaudited)
			£'000
Balance as at 7 October 2015 (date of incorporation)			-
Opening of sale and repurchase agreements			(5,918)
Closing-out of sale and repurchase agreements			3,554
Movement in unrealised losses in the period			(90)
Realised losses in the period			(61)
			----------
Total liabilities on sale and repurchase agreements as at 30 June 2016			(2,515)
			----------
Interest paid on sale and repurchase agreements has been accounted for in the Unaudited Condensed Statement of Comprehensive Income as it has been incurred.  At the period end date £2,000 of interest on sale and repurchase agreements was payable by the Company. 13. 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 30 June 2016, the financial assets and liabilities designated at fair value through profit or loss were as follows:

	30 June 2016  (unaudited)
	Level 1	Level 2	Level 3	Total
	£'000	£'000	£'000	£'000
Listed bonds	50,662	-	-	50,662
Credit default swaps	-	(775)	-	(775)
Derivative financial instruments	5	(2,840)	-	(2,835)
Sale and repurchase agreements	-	(2,515)	-	(2,515)
	-----------	-----------	-----------	------------
Total financial assets and liabilities designated as at fair value through profit or loss	50,667	(6,130)	-	44,537
	-----------	-----------	-----------	------------
Level 1 financial instruments include listed bonds 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 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 security, notional amount, expiration date, fixed and floating interest rates, payment schedules and/or dividends declared.
Transfers between levels Transfers between levels during the period are determined and deemed to have occurred at each financial reporting date.  There were no investments classified as Level 3 during the period, and no transfers between levels in the period.  See notes 9, 12 and 13 for movements in instruments held at fair value through profit or loss.

14.  Other payables and accruals
			30 June 2016 (unaudited)
			£'000
Investment management fee			137
Administration fee			31
Directors' fees			24
Depositary fees			10
Registrar fees			2
Interest due on sale and repurchase agreements (note 12)			2
Other accruals			30
			----------
Total payables and accruals			236
			----------
15.  Share capital
		30 June 2016 (unaudited)
		Number	£'000
Authorised:
Ordinary Shares of no par value		unlimited	-
			---------------
Allotted, called up and fully paid:
Ordinary Shares of no par value		54,683,222	-
		---------------	---------------
At the initial placing, on 3 November 2015 the Company issued 50,737,677 Ordinary Shares of no par value for £1 each, raising proceeds of £50.74 million. On 4 March 2016 the Company raised £3.55 million through the placing of 3,945,555 new Ordinary Shares of no par value.  The Ordinary Shares were issued at a price of 90p per share, bringing the total number of Ordinary Shares in issue at the period end date to 54,683,222.

16.  Net asset value per Ordinary Share

Basic and diluted The NAV of 92.02p per Ordinary Share is based on the net assets attributable to Equity Shareholders of £50,319,000 and on 54,683,222 Ordinary Shares in issue at the end of the period.

17.  Capital commitments

The Company holds a number of derivative financial instruments which, by their very nature, give rise to capital commitments post 30 June 2016.  These are as follows: ·      At the period end, the Company had sold four credit default swap agreements for a total of £634,000, each receiving quarterly interest.  The exposure of the Company in relation to these agreements at the period end date was US$20,076,000 (£15,084,000).  Collateral of US$1,960,000 (£1,472,000) at 30 June 2016 for these agreements is held with Goldman Sachs International.

·      At the period end the Company had committed to three foreign currency forward contracts dated 8 September 2016 to buy £41,797,000.  At 30 June 2016, the Company could have affected the same trades and purchased £44,638,000, giving rise to a loss of £2,841,000.  ·      At 30 June 2016, the Company had taken a long position maturing on 28 September 2016, committing the Company to a purchase of a gilt future for £3,058,000. ·      At the period end the Company held three open sale and repurchase agreements committing the Company to make a total repayment of £2,515,000 plus interest of £2,000.  The repayment dates for the debts were £1,907,000 on 7 July 2016 and £609,000 on 20 July 2016.  These payments were collateralised with the equivalent of £126,000 being held on account at Goldman Sachs International.

18.  Events after the financial reporting date

On 19 July 2016, the Company announced a dividend payment of 1.50p per Share to be paid on 26 August 2016.  The payment of the dividend was in line with the Company's dividend target of 6.00p per annum as detailed in the Prospectus. There were no other material events after 30 June 2016 that required disclosure as at 18 August 2016.

19. Related parties

Details of the relationships between the Company, the Investment Manager, the Administrator, the Broker, the Registrar, the Depositary and the Directors are disclosed in note 6. During the period, the Company purchased 2,910 units in Axiom Contingent Capital for £2.12 million and subsequently sold 910 units for £673,000 making a realised gain on investment of £9,000.  At the period end, the Company held 2,000 units in Axiom Contingent Capital valued at £1.64 million, generating an unrealised gain of £185,000.

The Directors are not aware of any ultimate controlling party.

20. 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 Board, with the assistance of the Investment Manager, monitors and reviews the structure of the Company's capital on an ad hoc basis. This review includes: ·    how funds could be returned to Shareholders; ·    the current and future levels of gearing; ·    the need to buy-back Ordinary Shares for cancellation or to be held in treasury, which takes account of the difference between the NAV per share and the share price; and ·    the current and future dividend policy.

The Company uses sale and repurchase agreements to increase the gearing of the Company.  As at 30 June 2016 the Company had three open sale and repurchase agreements committing the Company to make a total repayment of £2,515,000 including interest of £2,000 post the period end. As disclosed in the Unaudited Condensed Statement of Financial Position, at 30 June 2016, the total equity holders' funds were £50,319,000.

21. Significant accounting policies

a) Income and expenses

Bank interest, bond income and credit default swap income is recognised on a time-proportionate basis using the effective interest rate method. Dividend income is recognised when the right to receive payment is established. 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 Unaudited Condensed Statement of Comprehensive Income in the period in which they are incurred.

b) Transaction costs

Transaction costs incurred on the acquisition or disposal of a financial investment designated at fair value through profit or loss will be charged through the Unaudited Condensed Statement of Comprehensive Income in the period in which they are incurred.

c) 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 Unaudited Condensed Statement of Comprehensive Income.  Translation differences on non-monetary financial assets and liabilities are recognised in the Unaudited Condensed Statement of Comprehensive Income.

The Company does not isolate that portion of gains and losses on investments that is due to changes in foreign exchange rates from the portion due to changes in market prices of the investments.  Such fluctuations are included in gains/(losses) on financial assets and liabilities at fair value through profit or loss in the Unaudited Consolidated Statement of Comprehensive Income. The exchange rates used by the Company as at the 30 June 2016 were £1/€1.1984, £1/US$1.3311 and £1/DKK8.9153.

d) Taxation

The Directors intend to conduct the Company's affairs such that the Company remains eligible for exemption from Guernsey tax. Investment income is recorded gross of applicable taxes and any tax expenses are recognised through the Unaudited Condensed Statement of Comprehensive Income as incurred. The Company holds investments in several European countries, in some jurisdictions, investment income and capital gains are subject to withholding tax deducted at the source of the income.  The Company presents the withholding tax separately from the gross investment income in the Unaudited Condensed Statement of Comprehensive Income.  For the purpose of the Unaudited Condensed Statement of Cash Flows, cash inflows from investments are presented net of withholding taxes when applicable.

e) Dividends

The Company intends to distribute all of its income from investments, net of expenses, by way of dividends on a quarterly basis, with dividends declared in January, April, July and October and paid in February, May, August and November in each year. 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.

f) Bad debt provision

The Company differentiates between: ·      bonds (senior debt) where coupons are due; and ·   subordinated and hybrid instruments, where the non-payment does not result in a credit event for the issuer and tends to be fully discretionary in the case of hybrids. There are instruments in the portfolio that do not pay any distribution because the payment remains at the discretion of the issuer, or is under regulatory or state aid restrictions.  These are not classified as "bad debts". Principal amounts are not reviewed for debt recovery purposes, as these are carried at fair value through profit or loss and credit risk is built into the prices on which the carrying values are based.

With respect to senior debt only: ·   If bond interest has not been received within 30 calendar days of the expected pay date, unless there is good reason, 50% of the interest will be provided against; and ·   If bond interest has not been received within 60 calendar days of the expected pay date, unless there is good reason, 100% of the interest will be provided against.

Bad debts will be considered on an investment by investment basis and no general provision will be made.

g) Financial assets and liabilities

The financial assets and liabilities of the Company are defined as investments in bonds 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.

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.

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

After initial measurement, the Company measures financial instruments 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 dividend earned or paid on these instruments are recorded separately in interest income or expense and dividend income or expense.

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.

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

The Company records its transactions in bonds 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 payments on, or receipts from derivative contracts.

Offsetting of financial instruments

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

h) Derivative financial instruments
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.  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.  Fair value movements on derivative financial instruments are recognised in the Unaudited Condensed Statement of Comprehensive Income in the period in which they arise.
i) Offsetting of derivative assets and liabilities
International Financial Reporting Standard ("IFRS") 7, Financial Instruments: Disclosures, requires an entity to disclose information about offsetting rights and related arrangements.  The disclosures provide users with information to evaluate the effect of netting arrangements on an entity's financial position.  The disclosures are required for all recognised financial instruments that could be offset in accordance with International Accounting Standard 32, Financial Instruments Presentation, ("IAS32").  The disclosures also apply to recognised financial instruments that are subject to an enforceable master netting agreement or similar agreement, irrespective of whether there are offset in accordance with IAS32.
j) 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 comprises 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 collateralize the Company's derivative contracts and amounts transferred from the Company's bank account.
k) Receivables and prepayments
Receivables are carried at the original invoice amount, less allowance for doubtful receivables.  Provision is made when there is objective evidence that the Company will be unable to recover balances in full.  Balances are written-off when the probability of recovery is assessed as being remote.
l) Cash and cash equivalents
Cash in hand and in banks and short-term deposits which are held to maturity will be 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.
m) Payables and accruals
Trade and other payables are carried at payment or settlement amounts.  Where the time value of money is material, payables are carried at amortised cost.  When payables are received in currencies other than the reporting currency, they are carried forward, translated at the rate prevailing at the period end date.
n) 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 as a distributable reserve.
o) Distributable and non-distributable reserves
All income and expenses, foreign exchange gains and losses and realised investment gains and losses of the Company are allocated to the distributable reserve.
p)  NAV per share and loss per share
The NAV per share disclosed on the face of the Unaudited Condensed Statement of Financial Position is calculated by dividing the net assets by the number of Ordinary Shares in issue at the period end. Loss per share is calculated by dividing the loss for the period by the weighted average number of Ordinary Shares in issue during the period.
q) 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 results.  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, with the exception of IFRS 9, Financial Instruments, would have a material impact on the Company's financial statements in the period of initial application.  A full assessment of the impact of IFRS 9 and IFRS 15, Revenue from Contracts with Customers, has not yet been performed.
		Effective date
IFRS 2	Share-based payments	1 January 2018
IFRS 9	Financial Instruments	1 January 2018
IFRS 15	Revenue from Contracts with Customers	1 January 2018
IAS 7	Statement of Cash Flows	1 January 2017

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