Annual Financial Report

RNS Number : 7068P

Secured Income Fund PLC

21 October 2021

 

21 October 2021

Secured Income Fund plc

("SSIF" or the "Company")

Annual Financial Report

For the year ended 30 June 2021

A copy of the Company's Annual Report and Financial Statements for the year ended 30 June 2021 will shortly be available to view and download from the Company's website, https://kkvim.com/secured-income-fund/ .  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.

Enquiries to:

Directors David Stevenson (Chair) Susan Gaynor Coley Brett Miller	tel: [phone] tel: [phone] tel: [phone]
KKV Investment Management Limited	[e-mail]
finnCap Ltd. Corporate Finance:  William Marle / Giles Rolls Sales: Mark Whitfeld	tel: [phone]
https://kkvim.com/secured-income-fund/

The contents of this preliminary announcement have been extracted from the Company's Annual Report, which is currently in print and will be distributed within the week. The information shown for the years ended 30 June 2021 and 30 June 2020 does not constitute statutory accounts and has been extracted from the full accounts for the years ended 30 June 2021 and 30 June 2020. The reports of the auditors on those accounts were unqualified and did not contain adverse statements under sections 498(2) or (3) of the Companies Act 2006. The accounts for the year ended 30 June 2020 have been filed with the Registrar of Companies. The accounts for the year ended 30 June 2021 will be delivered to the Registrar of Companies in due course.

Strategic Report
Key Points
		30 June 2021	30 June 2020
Net assets [1]		£19,106,000	£45,532,000
NAV per Ordinary Share		36.28p	86.37p
Share price		42.50p	76.50p
Premium/(discount) to NAV		17.1%	(11.4)%
Loss for the year		£(11,017,000)	£(913,000)
Dividend per share declared in respect of the year		8.50p	7.00p
Dividend cover		0.002	0.44
B Share issue and redemption per Ordinary Share declared in respect of the year		19.50p	-
Total return per Ordinary Share (based on NAV) [2]		-25.6%	-1.8%
Total return per Ordinary Share (based on share price) [2]		-7.8%	-9.2%
Ordinary Shares in issue		52,660,350	52,660,350
[1]	In addition to the Ordinary Shares in issue, 1 Management Share of £1 is in issue (2020: 50,000) (see note 21).
[2]	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 and B Share redemptions paid, at the year end.

Overview and Investment Strategy
General information
Secured Income Fund plc (the "Company", "Fund" or "SIF") was incorporated in England and Wales under the Companies Act 2006 on 13 July 2015 with registered number 09682883.  It is an investment company, as defined in s833 of the Companies Act 2006.  Its shares were admitted to trading on the London Stock Exchange Specialist Fund Segment on 23 September 2015 ("Admission").
Change of name
On 18 July 2020, the Company changed its name from SQN Secured Income Fund plc to Secured Income Fund plc.
Investment objective and policy
On 17 September 2020, the Shareholders approved the adoption of a new investment objective and policy of the Company, as follows:
The Company will be managed with the intention of realising all remaining assets in the Portfolio in a prudent manner consistent with the principles of good investment management and with a view to returning cash to Shareholders in an orderly manner. The Company will pursue its investment objective by effecting an orderly realisation of its assets in a manner that seeks to achieve a balance between maximising the value received from those assets and making timely returns of capital to Shareholders. This process might include sales of individual assets, mainly structured as loans, or running off the Portfolio in accordance with the existing terms of the assets, or a combination of both.
As part of the realisation process, the Company may also exchange existing debt instruments for equity securities where, in the opinion of the Board, the Company is unlikely to be able to otherwise realise such debt instruments or will only be able to realise them at a material discount to the outstanding principal balance of that debt instrument.
The Company will cease to make any new investments or to undertake capital expenditure except where, in the opinion of both the Board and the Investment Manager (or, where relevant, the Investment Manager's successors):
-  the investment is a follow-on investment made in connection with an existing asset in order to comply with the Company's pre-existing obligations; or -  failure to make the follow-on investment may result in a breach of contract or applicable law or regulation by the Company; or -  the investment is considered necessary to protect or enhance the value of any existing investments or to facilitate orderly disposals. Any cash received by the Company as part of the realisation process prior to its distribution to Shareholders will be held by the Company as cash on deposit and/or as cash equivalents. The Company will not undertake new borrowing. Any material change to the investment policy would require Shareholder approval.
Although there was a change in the investment objective and policy, there was no change in the business model in the year as the loans continued to be held under a 'hold to collect' model.
Prior to 17 September 2020, the investment objective and policy were as follows:
Investment objective
The investment objective of the Company was to provide Shareholders with attractive risk adjusted returns, principally in the form of regular, sustainable dividends, through investment predominantly in a range of secured loans and other secured loan-based instruments originated through a variety of channels and diversified by way of asset class, geography and duration.
Investment policy
The Company achieved its investment objective by investing in a range of secured loan assets mainly through wholesale secured lending opportunities, secured trade and receivable finance and other collateralised lending opportunities.  Loan assets included both direct loans as well as other instruments with loan-based investment characteristics (for example, but not limited to, bonds, loan participations, syndicated loans, structured notes, collateralised obligations or hybrid securities) and may have included (subject to the limit set out below) other types of investment (for example, equity or revenue- or profit-linked instruments).  The Company may have made investments through alternative lending platforms that present suitable investment opportunities identified by the Investment Manager.
Chairman's Statement
Introduction
I am pleased to provide Shareholders with my Chairman's statement, covering the financial year from 1 July 2020 to 30 June 2021.  Over the reporting period, the Secured Income Fund plc (the "Company") has focussed on returning capital to Shareholders efficiently and in a timely manner. Since the wind down proposals were adopted in September, the Company has returned 28p per Ordinary Share through a combination of dividends and a B Share Scheme. Furthermore, the Company has reduced platform and third-party debt to 0.6% of NAV with the balance expected to settle in the upcoming months.
Performance
For the reporting year ended 30 June 2021, the Company generated a net loss of £11.0 million and loss per Ordinary Share of 20.92p (compared to loss of £0.9 million and loss per Ordinary Share of 1.73p for the year ended 30 June 2020).  The Company's NAV at 30 June 2021 was £19.1 million (36.28p (cum income) per Ordinary Share) compared to £45.5 million (86.37p per Ordinary Share) as at 30 June 2020.  During the reporting period, there has been a significant increase in the IFRS 9 provision across the direct loans. A large part of this was due to the marked deterioration of the expected cash flows of the film financings portfolio and the changed operating practices across the film industry as a result of the Covid-19 pandemic. The Board and Investment Manager also took the decision to increase the provision against a US Health Care Services Company following the sale of its core business assets which reduced the NAV further. Post-year end, the Investment Manager was informed of a delay in the principal repayment of the largest position in the portfolio, to the SME Loan Company, and as a result the provision has been increased. The position will be monitored closely over the next few weeks. In addition to the direct loans, there have been some notable changes across the remaining platform loans. The final real estate linked loan from the UK Offshore platform has now been fully impaired following continuous delays in receiving the outstanding balance including accrued penalty interest. The Investment Manager remains in regular dialogue with all the relevant parties to secure a positive resolution where possible. Moreover, during the period, we received the proceeds for most of the outstanding loans within the UK venture debt portfolio. One final loan remained within the portfolio, a broadband company, which has since been fully impaired. This position has been restructured in the past and any recovery is uncertain. We expect to receive an update providing clarity on the company's future in the coming months. Finally, with regards to the US promissory note, an agreement was reached before the financial year end in which the position would be settled for 25% of the outstanding principal balance. In September, post-year end, the settlement amount was received. Further information about the status of the remaining loans along with the respective assigned provisions is provided within the Investment Manager's Report. The Board has maintained regular distributions to Shareholders throughout the period, in the form of dividends during the first half of the reporting period and then via the B Share Scheme. This has contributed significantly to the decrease in the NAV with a total distribution equivalent to 29.17p per Ordinary Share made during the reporting period.
During the reporting period, the Company traded at an average discount to NAV of 8.7%.
Foreign exchange hedging was removed in September 2020, with details of USD and EUR exposure shown below. As a result of this investors should be aware that there might be some impact on the Company if FX markets move markedly.
The FX exposures at 30 June 2021 were as follows:
GBP	63.5%
EUR	22.4%
USD	14.1%
Note that all returns are net of all fees and no gearing was applied to the portfolio during the reporting period.
The portfolio exposure by maturity, geography and type are presented in the Company Analytics section in the Annual Report and Financial Statements .
Corporate Activity
In June 2020, Shareholders voted against the continuation of the Company as the Company did not manage to grow in the manner the Board, the Manager and Shareholders had hoped as it was unable to raise new capital and meet its original goal to increase shareholder capital to £250 million by December 2019.  The Company entered a Managed Wind-Down on 17 September 2020 and the Board of Directors and the Investment Manager have made a good start on the return of capital to investors expeditiously.  Costs have been monitored carefully and no new underwriting commitments have been made. In addition, as part of its ongoing management of the Company's running costs, the Board intends to put proposals to Shareholders to cancel the Company's admission to trading (the "Cancellation of Trading"). The proposals will be put to Shareholders at general meeting to be held immediately following the Company's annual general meeting on 16 December 2021 and, if approved, will take effect once the Company's NAV is reduced below £7 million. Full details of the proposed Cancellation of Trading will be set out in a circular that will shortly be sent to Shareholders.
The Board announced on 20 August 2021 that it has reached an agreement with its Investment Manager, KKV Investment Management Ltd and its AIFM, Kvika Securities Limited, to amend the investment management agreement ("IMA"). The IMA will terminate with effect from midnight on 31 December 2021.
The Board believes the revised Agreement allows for an orderly transition of the management of the portfolio to the Company and provides the Company with certainty over the level of future management fees payable to the Investment Manager, with the added flexibility of facilitating the Company becoming self-managed should the Board deem that appropriate, whilst providing for the ongoing management of the portfolio to 31 December 2021.
Dividends
During the first six months of the period, the Company elected to designate all dividends as interest distributions to its Shareholders.  In doing so, the Company took advantage of UK tax treatment by "streaming" income from interest-bearing investments into dividends that will be taxed in the hands of Shareholders as interest income. Over this period, the Company made dividend distributions equivalent to 9.67p per share.
Following the decision to proceed with a managed wind-down, the Board reviewed the dividend policy and decided to cease paying monthly dividends and is instead returning excess capital as and when the Company has excess cash reserves available for distribution.  However, it is the Board's intention that the Company will pay sufficient dividends each financial year to maintain investment trust status for so long as the Company remains listed.
Capital Distributions
In order to make returns of capital more tax efficient for some shareholders, the Company adopted a B Share scheme, whereby the Company is able to issue redeemable B Shares to Shareholders which are subsequently redeemed for cash.  A General Meeting was held on 23 March 2021, where the Board's proposal to adopt a B Share Scheme was accepted by Shareholders.
During the reporting period, the Board has distributed £10.27m using the B Share Scheme, which is equivalent to 19.5p per Ordinary Share. At the time of writing, a further £3.16m (equivalent to 6p per Ordinary Share) was returned to Shareholders post year end via a third Return of Capital by the issue of B Shares.
The quantum and timing of a Return of Capital to Shareholders following receipt by the Company of the net proceeds of realisations of investments will be dependent on the Company's liabilities and general working capital requirements. Accordingly, any future Return of Capital will continue to be at the discretion of the Board, which will announce details of each Return of Capital, including the relevant Record Date, Redemption Price and Redemption Date, through an RNS Announcement, a copy of which will be posted to Shareholders. The Board also intends to continue to make dividend payments, where possible, in accordance with the Company's dividend policy.
Board of Directors
Brett Miller joined the board as a director on 9 July 2020.  Apart from that there were no changes to the board composition during the reporting period.
Change of Auditor
Following a thorough, competitive tender process, the Board appointed Moore Kingston Smith LLP ("MKS") as auditor to the Company. MKS have conducted their first audit of the Company's financial statements for the financial year ended 30 June 2021.
Outlook
The Board's continued focus in the managed wind-down is to achieve a balance between maximising the value received from the remaining assets and making timely returns of capital to Shareholders, avoiding capital erosion where possible.

During the reporting period, marked deterioration of some assets has resulted in increased impairments and a reduced NAV. The Investment Manager is working closely with the relevant borrowers to ensure maximum returns for Shareholders in the circumstances. The Board will ensure this approach is maintained whilst aiming for a smooth transition of the portfolio to the Company at the end of December.

We thank investors for their continued support and hope to deliver investors total proceeds as close as possible for the remaining NAV. We shall keep investors informed of any developments as they occur.

David Stevenson

Chairman

20 October 2021

 

Investment Manager's Report

Overview

KKV Investment Management Limited ("KKV") assumed investment adviser responsibility for the Company on 5 June 2020. However, an agreement has been recently reached with the Board of the Secured Income Fund plc and the AIFM, Kvika Securities Ltd whereby the investment management agreement will be terminated with effect from midnight 31 December 2021. We therefore note that this is KKV's last report as Investment Manager but we remain focussed to ensure a smooth transition of the portfolio management responsibilities back to the Company over the next few months.

Following the decision by Shareholders to vote against continuation, we have been working hard to return capital to Shareholders in as expeditious a way as possible without damaging capital value. Since the wind-down of the Company commenced in September 2020, we have returned 8.5 pence to Shareholders via dividend distribution and 19.5 pence via a B Share Scheme which was adopted to ensure more tax efficient capital distributions for Shareholders. A further 6 pence has been distributed post year end.

Business Update

During the reporting period, Dawn Kendall, Chief Investment Officer, has taken a leave of absence which continues to date. Other members of KKV's executive team have managed to progress realisation opportunities in her absence under the oversight of Ken Hillen, Executive Chairman.

Portfolio

There are eleven direct loans in the portfolio with an average of £1.3m balance outstanding per loan. During the reporting period, there has been a significant increase in IFRS 9 impairment provisions for some of the direct loans. In particular, the six film financings, have suffered the effects of the pandemic with a marked deterioration of the expected cash flows, through cancelled film festivals and cinema screening to changes in operating practices whereby future sales are expected to be made via longer tail earn outs instead of the customary large upfront payments.

Legacy loans that formed part of the portfolio prior to April 2017 now make less than 1% of the NAV. Various factors such as continuous delays in repayment, depleted borrower assets and uncertainties in relation to a borrower's going concern have resulted in increased provisioning across the remaining legacy loans.

As the portfolio is now in wind-down, we have focussed on returning capital to Shareholders in a timely and efficient manner. On 23 March 2021, Shareholders voted in favour of the B Share Scheme. To date, we have made distributions of 25.5 pence per Ordinary Share via the B Share Scheme, which includes 6 pence per Share distributed post year end.

No leverage has been used throughout the reporting period and all assets are held in their base currency after a Board decision to discontinue hedging of capital and interest in September 2020.  Fluctuations in the value of Sterling during the reporting period has meant that these positions may be impacted and we have been providing a breakdown of the FX exposures in the portfolio in the factsheet publications in order to allow Shareholders the option to make their own hedging arrangements.

There were no breaches of investment guidelines during the reporting period.

DirectLoans
Borrower	Principal Balance Outstanding as at 30 June 2021 £	ECL provision at 30 June 2021 £	Loan Carrying Value at Amortised Cost [1] at 30 June 2021 £	Amortisation/ Bullet repayment/ other	Asset Type	Currency	Yield
Borrower 1	£5,632,560	£450,605	£5,181,955	Bullet repayment	Wholesale Lending	GBP	10%
Borrower 2	£4,131,479	£12,394	£4,119,085	Pass-through amortisation	SME and Leasing Fund	EUR	Variable
Borrower 3	£3,782,082	£1,891,041	£1,891,041	Interest only for 12 months, then scheduled amortisation	Medical Services	USD	12%
Borrower 4	£1,616,743	£913,237	£703,507	Cash sweep	Film Production Financing	USD	12%
Borrower 5	£511,874	£1,536	£510,338	Interest only during availability period, then scheduled amortisation	Leasing Group	GBP	9.5%
Borrower 6	£1,743,243	£1,278,812	£464,431	Cash sweep	Film Production Financing	GBP	11%
Borrower 7	£2,561,860	£2,102,049	£459,811	Cash sweep	Film Production Financing	GBP	12%
Borrower 8	£1,673,510	£1,220,542	£452,968	Cash sweep	Film Production Financing	GBP	11%
Borrower 9	£737,558	£422,636	£314,922	Cash sweep	Film Production Financing	GBP	12%
Borrower 10	£296,364	£889	£295,475	Scheduled amortisation	Laser and LED Manufacturer	GBP	10%
Borrower 11	£522,577	£400,189	£122,388	Cash sweep	Film Production Financing	GBP	12%
Direct Loans Total	£23,209,850	£8,693,930	£14,515,920

[1] The carrying values of loans at amortised cost disclosed in the table above do not include capitalised transaction fees, which totalled £44,000 at 30 June 2021.

The following provides a narrative relating to our direct loan investments.  Names of counterparties have been omitted for commercial and business sensitivity reasons.

SME Loan company (Borrower 1) - 27.1% of NAV

This is the largest individual facility provided by the Company and has been in place since May 2017. This is a long-established lender to the SME market. The borrower commenced capital repayment in January 2021 and has managed to repay 43.7% of the facility over the reporting period. There has been a delay in the borrower obtaining refinance and the Company has granted the borrower a three month extension, to the end of 2021 to source new funding. If the refinance fails to progress, then the underlying portfolio will enter run off and require collections over the coming 12-18 months.

Irish SME and Leasing Fund investment (Borrower 2) - 22.5% of NAV

This portfolio of 26 loans has continued to perform well despite the wider economic downturn due to significant exposure to technology and education companies. Most of the underlying loans are delivering income and the manager has been able to make healthy distributions to the Company during the reporting period.  The fund is in its harvest phase and we expect capital distribution to accelerate as loans mature or are refinanced.

US healthcare services company (Borrower 3) - 9.9% of NAV

This loan was made to a company specialising in ancillary medical services to a number of hospitals in the American Midwest including optometry, audiology, dentistry and podiatry. A key aspect of the security package is that there is a parent company guarantee in place over all scheduled interest and principal repayments. Prior to the year end, we were informed that there has been a sale of business assets, which has rendered the business economically unviable and resulted in a default. We have engaged legal counsel and a Reservations of Right letter has been issued. All amortised payments have been made on time; however, given the current situation we are monitoring the receivables very tightly.

Media financing (Borrowers 4, 6 through to 9 and Borrower 11) - 13.4% of NAV

The Company funded eight films in total through the borrower, two of which were repaid in full ahead of the reporting period. The final six film financings have been heavily impacted by the Covid-19 pandemic. The borrower has provided revised cashflow expectations based on sales forecasts and updates on timing of receipts. The cashflow can be split into two tranches: "contracted cashflow" (comprising Tax Credit, Receipts and Presold Income) and "non-contractual Future Sales" which are effectively mezzanine in nature and carry a higher risk profile. We have noted a marked deterioration of the expected cashflows across both tranches. There have been significant administration delays in receiving the contracted element and changing operating practises for future sales has meant that the customary large upfront payments are now considered highly unlikely for the films in the portfolio and would, at best, be replaced by longer tail earn outs.

Following the review and analysis, and recognising the limitations on security, recovery and the mezzanine nature of a large part of the expected cash flows, KKV recommended a substantial impairment on the positions. The portfolio is held in two Special Purpose Vehicles and the structure does allow for cross-subsidisation of performing films to non-performing films which has occurred in the past. However, this is only relevant when all principal and interest on an individual film loan has been repaid, and given it is unlikely that any of the films will now repay in full, this mechanism is considered redundant.

We are in regular dialogue with the borrower to closely monitor receipts, expectations of future sales and assess any changes to the cashflows.

UK leasing company (Borrower 5) - 2.7% of NAV

This loan has been underwritten since July 2017 on a rolling twelve month basis. It is a working capital facility to be used to warehouse deals financed by block facilities already in place. The underlying portfolio comprises a basket of loans split between two types of lending; 85% asset finance/leases with a typical deal size of £15,000 and 15% professional loans to white collar industry professionals supported by personal guarantee.

The borrower commenced amortisation in January 2021 and made all payments on time. This loan matured at the end of September 2021.

LED manufacturer in Ireland (Borrower 10) - 1.6% of NAV

This is a secured term loan that has been in place since May 2017 and is secured by a guarantee from the parent company, a debenture over the borrower and a charge over equipment purchased via Capex portion of the facility.

Their business has operated on a business as usual basis throughout the lockdowns.  The supply chain is functional, and customers continue to operate.

After granting a six month amortisation deferral, the borrower recommenced repayment of capital in October 2020. The loan is now due to mature in December 2022.

Legacy portfolio
Borrower	Principal Balance Outstanding at 30 June 2021 £	ECL provision at 30 June 2021 £	Loan Carrying Value at Amortised Cost at 30 June 2021 £	Currency	Yield
Borrower 12	£469,959	£361,507	£108,452	USD	8.0%
Borrower 13	£429	£110	£319	GBP	11.5%
Borrower 14	£1,218,063	£1,218,063	-	GBP	-
Borrower 15	£1,000,000	£1,000,000	-	GBP	-
Borrower 16	£415,714	£415,714	-	GBP	-
Borrower 17	£2,077,622	£2,077,622	-	USD	-
Borrower 18	£326,685	£326,685	-	EUR	-
Legacy Loans Total	£5,508,472	£5,399,701	£108,771
The following provides a narrative relating to the legacy loans within the portfolio.
US business promissory note (Borrower 12) - 0.6% of NAV
This loan is a working capital facility via a promissory note which was due to mature in July 2020. The borrower has been unable to settle the loan and we have since been in protracted negotiations to resolve the situation in the best interest of Shareholders. We reached an agreement to settle 25% of the principal balance outstanding; the settlement amount was received post year end, in September.
UK peer to peer loan platform (Borrower 13) - 0.0% of NAV
At the end of the reporting period, there was one performing loan remaining on the platform. This was fully repaid at the beginning of August, post year end.
UK Venture Debt (Borrower 14) - 0.0% of NAV
The capital for three of the outstanding loan notes within the portfolio was repaid in May 2021. The final position within the portfolio, a broadband company, has transferred over to the existing fund manager's new business. This has allowed for continuity in managing this complex position which has previously been restructured. There continues to be a number of uncertainties but we are hoping to have some clarity in the upcoming months. Following which, we will be able to provide Shareholders with an appropriate update. For now, given the complexities and the high dependence on certain events taking place, we have taken the prudent approach and fully provided for this position.
UK Offshore platform (Borrower 15) - 0.0% of NAV
The final credit from this platform has been in place since early 2017 and is a real estate linked loan to a developer on the island of Gibraltar. Despite continued assurances, we have not been repaid and took the decision to fully impair this position. We remain in regular contact with the platform to monitor progress and will continue to press for repayment. However, we remain uncertain of the balance that will be recovered.
Small company bond platform (Borrower 16) - 0.0% of NAV
The only outstanding debt from this platform was a recruitment business that had undergone a protracted recovery process through the courts. This loan is fully impaired.
US peer to peer business (Borrower 17) - 0.0% of NAV
The outstanding balance of this position has been fully impaired and we have assigned no further ability to recoup funds from the platform.

Spanish peer to peer loan platform (Borrower 18) - 0.0% of NAV

We have assigned zero probability of any further collections on the remaining 7 loans within the portfolio.  We continued to push for some return from these loans but after receiving a number of liquidation confirmations, we concluded that there was very little probability of recouping any further capital.

Outlook

We have made good progress with the realisation of the Company's portfolio since appointment and are focussed on continuing this through to the end of our term. We are confident that this approach will be maintained going forward as the portfolio management responsibilities transition back to the Company.

We would like to thank Shareholders for their support and as always will continue to share any updates on the progress over the upcoming months.

KKV Investment Management Ltd

20 October 2021

Principal Risks and Uncertainties

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 macroeconomic conditions may have a material adverse effect on the Company's yield on investments, default rate and cash flows.  The Board and the Investment Manager keep abreast of market trends and information to try to prepare for any adverse impact. The Company's assets are diversified by geography, asset class, and duration, thereby reducing the impact that macroeconomic risk may have on the overall portfolio. Interest rate risk arises from the possibility that changes in interest rates will affect future cash flows and/or fair values of the Company's investments.  Exposure to interest rate risk is limited by the use of fixed rate interest on the majority of the Company's loans, thereby giving security over future loan interest cash flows. Currency risk is the risk that changes in foreign exchange rates will impact future profits and net assets. Following the UK's exit from the EU on 31 January 2020, there may be some uncertainty in UK and European markets as they adjust to the new relationship between the UK and the EU and the rest of the world.  Although the exact impact of Brexit is not known, the Board believes that the Company is well placed to deal with future impacts from it. Covid-19 The Covid-19 pandemic is a risk to the global economy.  The Investment Manager and Administrator invoked their business continuity plans to help ensure the safety and well-being of their staff thereby retaining the ability to maintain business operations. These actions helped to ensure business resilience. The situation continues to change so the full impact cannot yet be understood, but future cashflows and valuations are more uncertain at the current time, and may be more volatile than in recent years.  Indeed, the level of estimation uncertainty and judgement for the calculation of expected credit losses has increased as a result of the economic effects of the Covid-19 pandemic (see notes 3b and 4 for further details). However, the impact of defaults that might occur in future under different economic scenarios has been reflected in various models to enable the Board to evaluate the Company's viability, and the Directors believe that the Company is well placed to survive the impact of the Covid-19 pandemic, thereby enabling the Company to realise its assets in an orderly manner. The impact of the various vaccines has started to be seen, and there is light at the end of the Covid-19 pandemic tunnel. It is expected that (as vaccine programmes continue to be rolled out globally) the risk to the Company from the pandemic will continue to decrease over the next 12 months. However, the Board recognises the possibility that there will be further future "waves" and variants of the Covid-19 virus and it will be some time before the pandemic can be declared "over".

Credit risk The Company invests in a range of secured loan assets mainly through wholesale secured lending opportunities, secured trade and receivable finance and other collateralised lending opportunities.  The Company is also exposed to direct loans.  Significant due diligence is undertaken on the borrowers of these loans and security taken to cover the loans and to mitigate the credit risk on such loans. The key factor in underwriting secured loans is the predictability of cash flows to allow the borrower to perform as per the terms of the contract.

Following the change of investment objective on 17 September 2020, the Company ceased to make any new investments or to undertake capital expenditure except where, in the opinion of both the Board and the Investment Manager (or, where relevant, the Investment Manager's successors): -  the investment is a follow-on investment made in connection with an existing asset in order to comply with the Company's pre-existing obligations; or -  failure to make the follow-on investment may result in a breach of contract or applicable law or regulation by the Company; or -  the investment is considered necessary to protect or enhance the value of any existing investments or to facilitate orderly disposals. The Company's assets are diversified by geography, asset class, and duration, thereby reducing the impact that investment risk may have on the overall portfolio.  This diversification may reduce as assets are realised, but is an acceptable, and to some extent unavoidable, risk associated with the realisation process. The credit risk associated with the investments is reduced not only by diversification but also by the use of security.  Despite the use of security, credit risk is not reduced entirely and so the Investment Manager monitors the recoverability of the loans (on an individual loan basis) each month and impairs loans in accordance with IFRS 9 Financial Instruments.

Platform risk The Company is dependent on platforms, albeit to a lesser extent for that reducing part of the loan portfolio originated through platforms than was the case prior to the change of Investment Manager in April 2017, to operate the loan portfolio (to effectively monitor loans; and to pay and receive monies as necessary).  If a platform were no longer able to operate effectively this could put at risk loans made with/through such a platform and increase credit risk. The Investment Manager undertakes due diligence on all the platforms and part of this work is to confirm that the platforms have disaster recovery policies in place whereby a third party administrator would step in to manage the loans in the event the platform could no longer do so.  If such an event were to occur, the Company's approach would vary depending on the platform and the circumstances, and would be determined by the Board after discussion with the Investment Manager and other advisers. The Company's exposure to platform risk is decreasing as it realises platform loans and exits positions on certain platforms entirely.

Regulatory risk The Company's operations are subject to wide ranging regulations, which continue to evolve and change.  Failure to comply with these regulations could result in losses and damage to the Company's reputation. The Company employs third party service providers to ensure that regulations are complied with.

Reputational risk Any adverse impact on the Company's reputation would likely result in a fall in its share price, thereby adversely affecting Shareholders.

Environment, 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 responsibility for any other emissions producing sources under the Companies (Directors' Report) and Limited Liability Partnerships (Energy and Carbon Report) Regulations 2018. When making investment decisions, the Investment Manager has not, historically, considered the impact that an entity in which the Company invests may have on the community. However, whilst the Board believes that all companies have a duty to consider their impact on the community and the environment, the Company does not have a direct impact on the community or environment and, as a result, does not maintain policies in relation to these matters.

The Investment Manager is committed to achieving the best possible risk-adjusted returns through integrating Environmental, Social and Governance ("ESG") considerations into its core investment analysis and decision-making process, whilst being mindful of the managed wind-down of the Company. The Investment Manager recognises the value in considering ESG risks and has adopted the following ESG approach in conducting its business:

· Taking into account the non-financial performance of target companies, specifically related to governance, social and environmental policy. · Adopting responsible and ethical approach to governance including: -  Remuneration of senior management and a policy on bonuses that is compliant with international standards; -  Implementation of compliance policies and procedures and on-going monitoring of the firm's systems and controls; -  Implementation of risk controls throughout the business; and -  Consideration of our ethical obligations in all business conduct (anti money laundering, anti-corruption, reputational due diligence). · Encouraging a human resource policy which values and respects all staff members through: · Objective criteria to measure performance and competencies; · Support programs requiring senior management involvement in all staff members career progression; and · Equality across all staff irrespective of role, gender, race, age, religious belief or sexual orientation.

Gender Diversity

The Board of Directors of the Company currently comprises two male Directors and one female Director.  Further information in relation to the Board's policy on diversity can be found in the Directors' Remuneration Report in the Annual Report and Financial Statements.

Key Performance Indicators

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

Dividend yield

The Company distributes at least 85% of its distributable income by way of dividends.  During any year, the Company may retain some of the distributable income and use these to smooth future dividend flows.

The Company has announced dividends of £4,476,000 (8.50p per Ordinary Share) for the year ended 30 June 2021 (2020: £3,684,000 (7.00p per Ordinary Share)), being far in excess (2020: 228.5%) of distributable income for the year (see notes 5 and 22 for further details).  To ensure the tax efficient streaming of qualifying interest income, the Company may announce an additional dividend for the year ended 30 June 2021, once the tax advisers have finalised the tax computations.

Capital returned to Shareholders

Following the change in investment objective on 17 September 2020, the Directors consider it important to measure the amount of capital returned to Shareholders.  During the year, £10,269,000 (see note 5) was returned to Shareholders by way of B Share redemptions and £5,090,000 (see note 5) was paid to Shareholders by way of dividends, which included two dividends of 0.583p per Ordinary Share each which related to the prior year.  In addition, during the year 49,999 Management Shares were bought back for £49,999 and cancelled (see note 21).

NAV and total return

The Directors regard the Company's NAV as a key component to delivering value to Shareholders, but believe that total return (which includes dividends and B Share redemptions) is the best measure for shareholder value.

Premium/discount of share price to NAV

The Board understand the importance of minimising the discount to NAV at which the Company's Ordinary Shares trade and the Board regularly monitors the premium/discount of the price of the Ordinary Shares to the NAV per share. During the year, the Company traded at an average discount to NAV of 8.7% (2020: 7.7%).  At 30 June 2021, the shares were trading at 42.50p, a 17.1% premium to NAV (2020: 76.50p, an 11.4% discount to NAV).

David Stevenson

Chairman

20 October 2021

Promoting the Success of the Company

The following disclosure outlines how the Directors have had regard to the matters set out in Section 172(1)(a) to (f) of the Companies Act 2006.

The Board considers the needs of a number of stakeholders when considering the long-term future of the Company. The key stakeholders with which the Board has liaised during the year ended 30 June 2021 were: · Shareholders; and · Key service providers.

Shareholders

The Company's significant Shareholders at the year end can be found in the Directors' Report in the Annual Report and Financial Statements.

When making principal decisions the Board consider it imperative to analyse the views of the Company's investors to ensure that its decisions are aligned with the wishes of Shareholders and that the Company can achieve its Investment Policy. The key performance indicators have been considered on an ongoing basis as part of the Board's decision making process.

Details of how the Directors communicate with Shareholders can be found in the Corporate Governance Report in the Annual Report and Financial Statements.

Other than the routine engagement with investors regarding strategy and performance, the Company's continuation was discussed with investors. A continuation vote was held on 19 June 2020 that, in line with the Directors' recommendation, did not pass. A further general meeting of the Company was held on 17 September 2020 at which a special resolution approved the managed wind-down of the Company and the adoption of the new investment policy of the Company.

Key service providers

Details of the Company's key service providers can be found in the Directors' Report in the Annual Report and Financial Statements.

The key service providers are fundamental to the Company's ability to continue in the same state as any changes could disrupt the expected timeliness of information provided to the markets. In turn, this would be likely to have a detrimental impact on the Company's reputation. However, on 20 August 2021, the Company agreed with the Investment Manager and its AIFM to amend the investment management agreement and for the agreement to terminate with effect from midnight on 31 December 2021. The Board believes that the revised Agreement provides the Company with certainty over the level of future management fees payable to the Investment Manager with the added flexibility of facilitating the Company becoming self-managed should the Board deem that appropriate, whilst providing for the ongoing management of the portfolio to 31 December 2021.  Overall, it allows for an orderly transition of the management of the portfolio to the Company.

The Board has continuous access to the Company's key service providers and has open two-way communication with them. Key aspects of discussion with these service providers, other than those regarding Company performance and strategy, were in respect of fees payable to these providers.

Following these discussions, the Investment Manager's fees were amended as disclosed in note 7.

David Stevenson

Chairman

20 October 2021

Statement of Comprehensive Income
for the year ended 30 June 2021
	Note	Year ended 30 June 2021	Year ended 30 June 2020
		£'000	£'000
Revenue
Interest income	3f	4,010	4,315
Impairment of interest income	14	(877)	-
		------------	------------
Net interest income		3,133	4,315
		------------	------------
Total revenue		3,133	4,315
		------------	------------
Operating expenses
Management fees	7a	(309)	(483)
Other expenses	11	(147)	(164)
Legal and professional fees		(139)	(97)
Administration fees	7b	(130)	(117)
Directors' remuneration	8	(119)	(94)
Broker fees		(56)	(197)
Transaction fees	7a	(46)	(147)
		------------	------------
Total operating expenses		(946)	(1,299)
		------------	------------
Investment gains and losses
Movement in unrealised gains and losses on loans due to movement in foreign exchange on non-Sterling loans	14, 24	(1,283)	410
Impairment losses on financial assets (or loans)	14	(9,657)	(3,299)
Movement in unrealised (loss)/gain on investments at fair value through profit or loss	15	(92)	19
Movement in unrealised gain on derivative financial instruments	17, 24	6	345
Realised loss on disposal of loans		(2,544)	(536)
Realised gain on disposal of investments at fair value through profit or loss	15	94	-
Realised gain/(loss) on derivative financial instruments	17, 24	269	(852)
		------------	------------
Total investment gains and losses		(13,207)	(3,913)
		------------	------------
Net loss from operating activities before gain/(loss) on foreign currency exchange		(11,020)	(897)
Net foreign exchange gain/(loss)	24	3	(16)
		------------	------------
Loss and total comprehensive income for the year attributable to the owners of the Company		(11,017)	(913)
		------------	------------
Loss per Ordinary Share (basic and diluted)	13	(20.92)p	(1.73)p
		------------	------------

There were no other comprehensive income items in the year. Except for unrealised investment gains and losses, all of the Company's profit and loss items are distributable. The accompanying notes form an integral part of the financial statements.

Statement of Changes in Equity for the year ended 30 June 2021
	Note	Called up share capital	Capital redemption reserve	Special distributable reserve	Profit and loss account	Total
		£'000	£'000	£'000	£'000	£'000
At 1 July 2019		577	-	50,253	(701)	50,129
Loss for the year	22	-	-	-	(913)	(913)
Transactions with Owners in their capacity as owners:
Dividends paid	5,22	-	-	(2,072)	(1,612)	(3,684)
		------------	------------	------------	------------	------------
At 30 June 2020		577	-	48,181	(3,226)	45,532
Loss for the year	22	-	-	-	(11,017)	(11,017)
Transactions with Owners in their capacity as owners:
Dividends paid	5,22	-	-	(4,324)	(766)	(5,090)
B Shares issued during the year	5, 21, 22	10,269	-	(10,269)	-	-
B Shares redeemed during the year	5, 21, 22	(10,269)	10,269	(10,269)	-	(10,269)
Management Share buy backs	21, 22	(50)	50	(50)	-	(50)
		------------	------------	------------	------------	------------
At 30 June 2021		527	10,319	23,269	(15,009)	19,106
		------------	------------	------------	------------	------------
There were no other comprehensive income items in the year. The above amounts are all attributable to the owners of the Company. The accompanying notes form an integral part of the financial statements.

Statement of Financial Position
as at 30 June 2021
	Note	30 June 2021	30 June 2020
		£'000	£'000
Non-current assets
Loans at amortised cost	14	7,336	31,942
Investments at fair value through profit or loss	15,16	-	251
		------------	------------
Total non-current assets		7,336	32,193
		------------	------------
Current assets
Loans at amortised cost	14	7,333	10,691
Other receivables and prepayments	18	189	1,625
Cash and cash equivalents		4,396	1,193
		------------	------------
Total current assets		11,918	13,509
		------------	------------
Total assets		19,254	45,702
		------------	------------
Current liabilities
Other payables and accruals	19	(148)	(164)
Derivative financial instruments	16,17	-	(6)
		------------	------------
Total liabilities		(148)	(170)
		------------	------------
		------------	------------
Net assets		19,106	45,532
		------------	------------
Capital and reserves attributable to owners of the Company
Called up share capital	21	527	577
Other reserves	22	18,579	44,955
		------------	------------
Equity attributable to the owners of the Company		19,106	45,532
		------------	------------
Net asset value per Ordinary Share	23	36.28p	86.37p
		------------	------------
These financial statements of Secured Income Fund plc (registered number 09682883) were approved by the Board of Directors on 20 October 2021 and were signed on its behalf by:
David Stevenson Chairman 20 October 2021		Gaynor Coley Director 20 October 2021
The accompanying notes form an integral part of the financial statements.

Statement of Cash Flows
for the year ended 30 June 2021
	Year ended 30 June 2021	Year ended 30 June 2020
	£'000	£'000
Cash flows from operating activities
Net loss before taxation	(11,017)	(913)
Adjustments for:
Movement in unrealised gains and losses on loans due to movement in foreign exchange on non-Sterling loans	1,283	(410)
Impairment losses on financial assets (or loans)	9,657	3,299
Movement in unrealised loss/(gain) on investments at fair value through profit or loss	92	(19)
Movement in unrealised gain on derivative financial instruments	(6)	(345)
Realised loss on disposal of loans	2,544	536
Realised gain on disposal of investments at fair value through profit or loss	(94)	-
Realised (gain)/loss on derivative financial instruments	(269)	852
Amortisation of transaction fees	46	147
Interest received and reinvested by platforms	(1)	(50)
Capitalised interest	(1,174)	(1,486)
Decrease in investments	16,131	1,783
	------------	------------
Net cash inflow from operating activities before working capital changes	17,192	3,394
Decrease/(increase) in other receivables and prepayments	1,436	(484)
Decrease in other payables and accruals	(16)	(20)
	------------	------------
Net cash inflow from operating activities	18,612	2,890
Cash flows from financing activities
Dividends paid	(5,090)	(3,684)
B Share scheme redemptions	(10,269)	-
Management share buy backs	(50)	-
	------------	------------
Net cash outflow from financing activities	(15,409)	(3,684)
	------------	------------
Increase/(decrease) in cash and cash equivalents in the year	3,203	(794)
Cash and cash equivalents at the beginning of the year	1,193	1,987
	------------	------------
Cash and cash equivalents at the year end	4,396	1,193
	------------	------------
Supplemental cash flow information
Non-cash transaction - interest income	1,175	1,536
The accompanying notes form an integral part of the financial statements.

Notes to the Financial Statements for the year ended 30 June 2021

1. General information

The Company is a public company (limited by shares) and was incorporated and registered in England and Wales under the Companies Act 2006 on 13 July 2015 with registered number 09682883. The Company's shares were admitted to trading on the London Stock Exchange Specialist Fund Segment on 23 September 2015 ("Admission"). The Company is domiciled in England and Wales. The Company is an investment company as defined in s833 of the Companies Act 2006. Change of name On 18 July 2020, the Company changed its name from SQN Secured Income Fund plc to Secured Income Fund plc.

2. Statement of compliance

a)  Basis of preparation These financial statements present the results of the Company for the year ended 30 June 2021.  These financial statements have been prepared in accordance with UK-adopted International Financial Reporting Standards ("IFRS"). These financial statements have not been prepared in full accordance with the Statement of Recommended Practice ("SORP") for investment trusts issued by the AIC in October 2019, as the main driver of the SORP is to disclose the allocation of expenses between revenue and capital, thereby enabling a user of the financial statements to determine distributable reserves.  However, with the exception of investment gains and losses, all of the Company's profit and loss items are of a revenue nature as it does not allocate any expenses to capital.  Therefore, the Directors believe that full compliance with the SORP would not be of benefit to users of the financial statements.  Further details on the distributable reserves are provided in note 22. T he Company's capital is raised in Sterling, expenses are paid in Sterling, the majority of the Company's financial assets and liabilities are Sterling based, and (until September 2020) the Company hedged substantially all of its foreign currency risk back to Sterling. Therefore, the Board of Directors consider that Sterling most faithfully represents the economic effects of the underlying transactions of the Company, events and conditions. T hese financial statements are presented in Sterling, which is the Company's functional and presentation currency.  All amounts are rounded to the nearest thousand.

Financial statements prepared on a non-going concern basis On 19 June 2020, the Company held a continuation vote (the "Continuation Vote") that, in line with the Directors' recommendation, did not pass. This vote was required under the Articles as the Company did not have a Net Asset Value of at least £250 million as at 31 December 2019. As this vote did not pass, the Directors (as required under the Articles) convened a further general meeting of the Company on 17 September 2020 at which a special resolution approved the managed wind-down of the Company and the adoption of the new investment policy of the Company to carry out an orderly realisation of the Company's portfolio of assets and distribution of cash to Shareholders . This has had no significant impact on the accounting policies, judgements or recognition of and carrying value of assets and liabilities within the financial statements as the loans are included net of their expected credit loss provision ("ECL") and are expected to be realised in an orderly manner, and the estimated costs of winding up the Company are immaterial and therefore have not been provided for in the financial statements .

The Covid-19 pandemic is a risk to the global economy. Details of the macroeconomic impact and the impact on credit risk are provided in the Investment Manager's Report.  The Investment Manager and Administrator invoked their business continuity plans to help ensure the safety and well-being of their staff thereby retaining the ability to maintain business operations. These actions helped to ensure business resilience.  The situation continues to change so the full impact cannot yet be understood, but the Company will continue to monitor the situation.

b)  Basis of measurement The financial statements have been prepared on a historical cost basis, except for investments at fair value through profit or loss and derivative instruments, which are measured at fair value through profit or loss.

Given the Company's investment policy to carry out an orderly realisation of the Company's portfolio of assets and distribution of cash to Shareholders, the financial statements have been prepared on a non-going concern basis.

c)  Segmental reporting The Directors are of the opinion that the Company is engaged in a single economic segment of business, being investment in a range of SME loan assets. Consequently, no segmental analysis is required.

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 the 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 in the next year are discussed in note 4.

3. Significant accounting policies
a)  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.  Translation differences on non-monetary financial assets and liabilities are recognised in the Statement of Comprehensive Income.
b)  Financial assets and liabilities The financial assets and liabilities of the Company are defined as loans, bonds with loan type characteristics, investments at fair value through profit or loss, cash and cash equivalents, other receivables, derivative instruments and other payables.
Classification IFRS 9 requires the classification of financial assets to be determined on both the business model used for managing the financial assets and the contractual cash flow characteristics of the financial assets.  Loans have been classified at amortised cost as: -  they are held within a "hold to collect" business model with the objective to hold the assets to collect contractual cash flows; and -  the contractual terms of the loans give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. Although there was a change in the investment objective and policy, there was no change in the business model in the year as the loans continued to be held under a 'hold to collect' model. The Company's unquoted investments have been classified as held at fair value through profit or loss as they are held to realise cash flows from the sale of the investments.
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 profit or loss. Financial assets and financial liabilities not designated as at fair value through profit or loss, such as loans, are initially recognised at fair value, being the amount issued less transaction costs.
Subsequent measurement After initial measurement, the Company measures financial assets and financial liabilities not designated as at fair value through profit or loss, at amortised cost using the effective interest rate method, less impairment allowance.  Gains and losses are recognised in the Statement of Comprehensive Income when the asset or liability is derecognised or impaired.  Interest earned on these instruments is recorded separately as investment 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. The carrying value of cash and cash equivalents and other receivables and payables equals fair value due to their short-term nature.
Impairment
A financial asset is credit-impaired when one or more events that have occurred have a significant impact on the expected future cash flows of the financial asset.  It includes observable data that has come to the attention of the holder of a financial asset about the following events: · Significant financial difficulty of the issuer or borrower; · A breach of contract, such as a default or past-due event; · The lenders for economic or contractual reasons relating to the borrower's financial difficulty granted the borrower a concession that would not otherwise be considered; · It becoming probable that the borrower will enter bankruptcy or other financial reorganisation; · The disappearance of an active market for the financial asset because of financial difficulties; or · The purchase or origination of a financial asset at a deep discount that reflects incurred credit losses.
Each direct loan is assessed on a continuous basis by the Investment Manager's own underwriting team with peer review occurring on a regular basis. Each platform loan is monitored via the company originally deployed to conduct underwriting and management of the borrower relationship.  When a potential impairment is identified, the Investment Manager requests data and management information from the platform.  The Investment Manager will then actively pursue collections, giving guidance to the platforms on acceptable levels of impairment.  In some cases, the Investment Manager will proactively take control of the process. Impairment of financial assets is recognised on a loan-by-loan basis in stages:
Stage 1:	As soon as a financial instrument is originated or purchased, 12-month expected credit losses are recognised in profit or loss and a loss allowance is established.  This serves as a proxy for the initial expectations of credit losses. For financial assets, interest revenue is calculated on the gross carrying amount (i.e. without deduction for expected credit losses).
Stage 2:	If the credit risk increases significantly and is not considered low, full lifetime expected credit losses are recognised in profit or loss.  The calculation of interest revenue is the same as for Stage 1. This stage is triggered by scrutiny of management accounts and information gathered from regular updates from the borrower by way of email exchange or face-to-face meetings.  The Investment Manager extends specific queries to borrowers if they acquire market intelligence or channel-check the data received.  A covenant breach may be a temporary circumstance due to a one-off event and will not trigger an immediate escalation in risk profile to stage 2. At all times, the Investment Manager considers the risk of impairment relative to the cash flows and general trading conditions of the company and the industry in which the borrower resides.
Stage 3:	If the credit risk of a financial asset increases to the point that it is considered credit-impaired, interest revenue is calculated based on the amortised cost (i.e. the gross carrying amount less the loss allowance).  Financial assets in this stage will generally be assessed individually.  Lifetime expected credit losses are recognised on these financial assets. This stage is triggered by a marked deterioration in the management information received from the borrower and a view taken on the overall credit conditions for the sector in which the company resides.  A permanent breach of covenants and a deterioration in the valuation of security would also merit a move to stage 3. The Investment Manager also takes into account the level of security to support each loan and the ease with which this security can be monetised.  This has a meaningful impact of the way in which impairments are assessed, particularly as the Investment Manager has a very strong track record in managing write-downs and reclaim of assets.  For more details in relation to judgements, estimates and uncertainty see note 4.
c)  Cash and cash equivalents 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. The carrying values of cash and cash equivalents are deemed to be a reasonable approximation of their fair values.
d)  Receivables and prepayments Receivables are carried at the original invoice amount, less impairments, as discussed above. The carrying values of the accrued interest and other receivables are deemed to be reasonable approximations of their fair values.
e)  Transaction costs Transaction costs incurred on the acquisition of loans are capitalised upon recognition of the financial asset and amortised over the term of the respective loan.
f)  Income and expenses Interest income and bank interest are 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 Statement of Comprehensive Income in the period in which they are incurred.
g)  Taxation The Company is exempt from UK corporation tax on its chargeable gains as it satisfies the conditions for approval as an investment trust.  The Company is, however, liable to UK corporation tax on its income.  However, the Company has elected to take advantage of modified UK tax treatment in respect of its "qualifying interest income" in order to deduct all, or part, of the amount it distributes to Shareholders as dividends as an "interest distribution".
h)  B Shares
B Shares are redeemable at the Company's option and are classified as equity as the potential indicator of a liability, being the fixed rate cumulative dividend, is immaterial given the shares are allotted and redeemed on the same day. B Shares, which are redeemed immediately following issue, are measured at the redemption amount.
i)  Reserves
Under the Company's articles of association, the Directors may, having obtained the relevant authority of Shareholders pursuant to the implementation of the B share scheme, capitalise any sum standing to the credit of any reserve of the Company for the purposes of paying up, allotting and issuing B Shares to Shareholders.
(i)  Capital Redemption Reserve The nominal value of Ordinary Shares if bought back and cancelled and the nominal value of B Shares redeemed and subsequently cancelled are added to this reserve. This reserve is non-distributable. (ii)  Special Distributable Reserve During the period ended 30 June 2016, and following the approval of the Court, the Company cancelled the share premium account and transferred £51,143,000 to a special distributable reserve, being premium on issue of shares of £52,133,000 less share issue costs of £990,000.  The special distributable reserve is available for distribution to Shareholders, including the payment of dividends, return capital to shareholders, buy back of Ordinary Shares or redemption of B Shares. (iii)  Profit and loss account - distributable The net profit/loss arising from realised revenue (income, expenses, foreign exchange gains and losses and taxation) in the Statement of Comprehensive Income is added to this reserve, along with realised gains and losses on the disposal of financial assets and derivative positions. Dividends paid during the year are deducted from this reserve, where sufficient reserves are available. (iv)  Profit and loss accounts - non-distributable Unrealised gains and losses on financial assets and derivative positions are taken to this reserve.
j)  Changes in accounting policy and disclosures
New and amended standards and interpretations The Company adopted the following new and amended relevant IFRS in the year:
IFRS 7		Financial Instruments: Disclosures - amendments regarding pre-replacement issues in the context of the IBOR reform
IFRS 9		Financial Instruments - amendments regarding pre-replacement issues in the context of the IBOR reform
IAS 1		Presentation of Financial Statements - amendments regarding the definition of materiality
IAS 8		Accounting Policies, Changes in Accounting Estimates and Errors - amendments regarding the definition of materiality
The adoption of these accounting standards did not have any effect on the Company's Statement of Comprehensive Income, Statement of Financial Position or equity.  A number of other amendments and interpretations are applicable for the year but are not relevant to the Company.

k)  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
IFRS 7	Financial Instruments: Disclosures - amendments regarding replacement issues in the context of the IBOR reform	1 January 2021
IFRS 9	Financial Instruments - amendments regarding replacement issues in the context of the IBOR reform	1 January 2021
IFRS 9	Financial Instruments - a mendments resulting from Annual Improvements to IFRS Standards 2018-2020 (fees in the "10 per cent" test for derecognition of financial liabilities)	1 January 2022
IAS 1	Presentation of Financial Statements - amendments regarding the classification of liabilities	1 January 2023
IAS 1	Presentation of Financial Statements - amendments regarding the disclosure of accounting policies	1 January 2023
IAS 8	Accounting Policies, Changes in Accounting Estimates and Errors - amendments regarding the definition of accounting estimates	1 January 2023
IAS 37	Provisions, Contingent Liabilities and Contingent Assets - amendments regarding the costs to include when assessing whether a contract is onerous	1 January 2022
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.  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 made the following judgement, which has had a significant effect on the amounts recognised in the financial statements: Covid-19 The Covid-19 pandemic is impacting virtually all businesses and the Board expects that it will continue to impact economies over the coming months. The Board and Investment Manager is monitoring any impact this may have on the Company, its investments and income. The situation continues to change rapidly so the full impact cannot yet be understood, a result of which is that future cashflows and valuations are more uncertain at the current time, and may be more volatile than in recent years.  Indeed, the level of estimation uncertainty and judgement for the calculation of expected credit losses has increased as a result of the economic effects of the Covid-19 pandemic. However, the impact of defaults that might occur in future under different economic scenarios has been reflected in various models to enable the Board to evaluate the Company's viability, and the Directors believe that the Company is well placed to survive the impact of the Covid-19 pandemic, thereby enabling the Company to realise its assets in an orderly manner.
Classification of B Shares
The B Shares pay a fixed rate cumulative preferential cash dividend of 1% per annum of the nominal value of £1, and have limited rights, including that: the holders of the B Shares shall not be entitled to any further right of participation in the profits or assets of the Company; and the B Shares are redeemable at the Company's option. However, as the potential indicator of a liability, being the fixed rate cumulative dividend, is immaterial given the B Shares are allotted and redeemed on the same day, the B Shares are classified as equity. B Shares, which are redeemed immediately following issue, are measured at the redemption amount.
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.
The current economic uncertainty (and the frequent changes in outlook for different economic sectors) has created increased volatility and uncertainty (as mentioned above and in the Investment Manager's Report).  In such circumstances the level of estimation uncertainty and judgement of expected credit losses has increased.  As noted in the Investment Manager's Report, there are uncertainties about the need for future provisions that may need to be made against individual loans and receivables.  Notwithstanding the best endeavours of management to obtain full repayment there is a material uncertainty in relation to the level of provisioning made in these financial statements.  Due to this material uncertainty the Directors are unable to update the expected credit loss assessment (as set out in note 3b) to reflect the likely impact on the Company's loan portfolio.
i) Recoverability of loans and other receivables In accordance with IFRS 9, the impairment of loans and other receivables has been assessed as described in note 3b.  When assessing the credit loss on a loan, and the stage of impairment of that loan, the Company considers whether there is an indicator of credit risk for a loan when the borrower has failed to make a payment, either capital or interest, when contractually due and upon assessment.  The Company assesses at each reporting date (and at least on a monthly basis) whether there is objective evidence that a loan classified as a loan at amortised cost is credit-impaired and whether a loan's credit risk or the expected loss rate has changed significantly.  As part of this process: · Platforms are contacted to determine default and delinquency levels of individual loans; and · Recovery rates are estimated. The analysis of credit risk is based on a number of factors and a degree of uncertainty is inherent in the estimation process.  As mentioned above, due to the Covid-19 pandemic future cashflows and valuations are more uncertain at the current time, and may be more volatile than in recent years. Indeed, the level of estimation uncertainty and judgement for the calculation of expected credit losses has increased as a result of the economic effects of the Covid-19 pandemic.

The determination of whether a specific factor is relevant and its weight compared with other factors depends on the type of product, the characteristics of the financial instrument and the borrower, and the geographical region.  It is not possible to provide a single set of criteria that will determine what is considered to be a significant increase in credit risk. Events that the Company will assess when deciding if a financial asset is credit impaired include:

· significant financial difficulty of the borrower; · a breach of contract, such as a default or past-due event; and · it becoming probable that the borrower will enter bankruptcy or other financial reorganisation.

Although it may not always be the case (e.g. if discussions with a borrower are ongoing), generally a loan is deemed to be in default if the borrower has missed a payment of principal or interest by more than 180 days, unless the Company has good reason not to apply this rule. If the Company has evidence to the contrary, it may make an exception to the 180 day rule to deem that a borrower is, or is not, in default. Therefore, the definitions of credit impaired and default are aligned as far as possible so that stage 3 represents all loans that are considered defaulted or otherwise credit impaired.

IFRS 9 confirms that a Probability of Default ("PD") must never be zero as everything is deemed to have a risk of default; this has been incorporated into the assessment of expected credit losses . All PDs are assessed against historic data as well as the prevailing economic conditions at the reporting date, adjusted to account for estimates of future economic conditions that are likely to impact the risk of default. Since November 2020, 12-month PD has been calculated based on the Investment Manager's 10 level grading system, where: · levels 1 to 6 fall into Stage 1, with 12-month PD ranging from 0.01% to 10%; · levels 7 to 9 fall into Stage 2, with 12-month PD ranging from 20% to 60%, and · level 10 falls into Stage 3, with a 12-month PD of 100%. Prior to November 2020, 12-month PD was applied across the collective as a cumulative in Stage 1, set at 2% in line with the Investment Manager's historic performance data, market knowledge, and credit enhancements (that was equivalent to there being 1 default for an average portfolio of 50 unique borrowers). Once an investment moved to Stage 2 then PD was calculated on an individual basis (and adjusted for Stage 3 if appropriate). All assessment is based on reasonable and supportive information available at the time.

Since November 2020, 12-month ECL has been calculated based on the Investment Manager's categorisation, as follows:
Category	KKV loss given default ("LGD") approach
Easily Realisable	Asset value less 10% haircut discounted at 10% IRR for 12 months to recovery
Realisable	Asset value less 20% discounted at 20% IRR for 2 years to recovery
Highly Specialised/Unsecured	70% LGD
Subordinated Debt	100% LGD

Prior to November 2020, 12-month ECL was applied across the collective as a cumulative in Stage 1, split according to the investment's classification. For direct loan investments this was calculated as 2% of the individual investment's Contracted Cash Flows ("CCF"), and 2% of the investment's CCF for platform investments. Those Stage 1 12-month ECL amounts were taken to be the investments' floor amounts - the Lifetime ECL for any investment could never be less than its floor amount. Once an investment moved to Stage 2, Lifetime ECL was calculated on an individual basis. Lifetime ECL is reviewed at each reporting date based on reasonable and supportive information available at the time.
Details of the judgements applied in assessing the recoverability of loans can be found in the Investment Manager's Report and should be read in conjunction with the current economic environment and, in particular, the impact of Covid-19.
Collateral While the presence of collateral is not a key element in the assessment of whether there has been a significant increase in credit risk, it is of great importance in the measurement of ECL. IFRS 9 states that estimates of cash shortfalls reflect the cash flows expected from collateral and other credit enhancements that are integral to the contractual terms. Due to the business nature of the Investment Manager, this is a key component of its ECL measurement and interpretation of IFRS 9, as any investment would include elements of (if not all): a fully collateralised position, fixed and floating charges, a corporate guarantee, a personal guarantee, coverage ratios between 130% to 150%, and an average LTV of 85%.
Loans written off Financial assets (and the related impairment allowances) are normally written off, either partially or in full, when there is no realistic prospect of recovery. Where loans are secured, this is generally after receipt of any proceeds from the realisation of security. In circumstances where the net realisable value of any collateral has been determined and there is no reasonable expectation of further recovery, write-off may be earlier.  Platform loans of £1,887,000 were written off in the year (2020: £268,000) .
Renegotiated loans A loan is classed as renegotiated when the contractual payment terms of the loan are modified because the Company has significant concerns about a borrower's ability to meet payments when due. On renegotiation, the loan will also be classified as credit impaired, if it is not already. Renegotiated loans will continue to be considered to be credit impaired until there is sufficient evidence to demonstrate a significant reduction in the risk of non-payment of future payments.
All data calculated for IFRS 9 purposes is consistent with the overall methodology employed by KKV and its parent company, Kvika Securities Ltd, across all of their UK public funds.  In addition to the methodology used, the Company has taken impairment data from Platforms for the assessment of loans with third party exposure.  Again, this is consistent with the approach KKV would expect to take in these circumstances.
There were no new assets originated during the year that were credit-impaired at the point of initial recognition. There were no financial assets that have been modified since initial recognition at a time when the loss allowance was measured at an amount equal to lifetime expected credit losses and for which the loss allowance changed during the year to an amount equal to 12-month expected credit losses. There were no financial assets for which cash flows were modified in the year while they had a loss allowance measured at an amount equal to the lifetime expected credit loss.
Please see note 3b, note 14 and note 24 for further information on the loans at amortised cost and credit risk.

5. Dividends
The Company distributes at least 85% of its distributable income earned in each financial year by way of dividends.
T he Company elected to designate all of the dividends for the year ended 30 June 2021 as interest distributions to its Shareholders.  In doing so, the Company took advantage of UK tax treatment by "streaming" income from interest-bearing investments into dividends that will be taxed in the hands of Shareholders as interest income.
To date, the Company has declared the following dividends in respect of earnings for the year ended 30 June 2021:
Announcement date	Pay date	Total dividend declared in respect of earnings in the year	Amount per Ordinary Share
		£'000
26 August 2020	25 September 2020	1,843	3.50p
26 November 2020	23 December 2020	2,633	5.00p
		------------	------------
Dividends declared (to date) for the year		4,476	8.50p
Less, dividends paid after the year end		-	-
Add, dividends paid in the year in respect of the prior year		614	1.17p
		------------	------------
Dividends paid in the year		5,090	9.67p
		------------	------------
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 £5,090,000 (2020: £3,684,000) was incurred in respect of dividends, none of which was outstanding at the reporting date (2020: none). All dividends in the year were paid out of revenue (and not capital) profits.

Mechanics for returning cash to Shareholders

The Board carefully considered the potential mechanics for returning cash to Shareholders and the Company's ability to do so. The Board believes it is in the best interests of Shareholders as a whole to make distributions to Shareholders without a significant delay following realisations of a material part of the Portfolio (whether in a single transaction or through multiple, smaller transactions concluded on similar timing), whether by dividend or other method. After careful consideration and discussions with a number of Shareholders, the Board believes that one of the fairest and most cost-efficient ways of returning substantial amounts of cash to Shareholders is by adopting a B Share Scheme, whereby the Company will be able to issue redeemable B Shares to Shareholders. These are then redeemed on a Redemption Date without further action being required by Shareholders.

The B Shares are issued out of the special distributable reserve, then the special distributable reserve is utilised again when the B Shares are redeemed - the B Share capital is cancelled and an equal amount credited to the capital redemption reserve.

Notice of a General Meeting of Shareholders was published on 26 February 2021 and these arrangements were accepted by Shareholders at the General Meeting held on 23 March 2021.

The Company made two B Share Scheme redemptions between 23 March 2021 and 30 June 2021, totalling £10,269,000, equivalent to 19.50p per Ordinary Share. A further B Share Scheme redemption of £3,160,000 (6.00p per Ordinary Share) was made on 23 July 2021.

The Board also intends to make quarterly dividend payments, where possible, in accordance with the Company's dividend policy and to maintain investment trust status for so long as the Company remains listed.

6. Related parties

As a matter of best practice and good corporate governance, the Company has adopted a related party policy which applies to any transaction which it may enter into with any Director, the Investment Manager, or any of their affiliates which would constitute a "related party transaction" as defined in, and to which would apply, Chapter 11 of the Listing Rules.  In accordance with its related party policy, the Company obtained: (i) the approval of a majority of the Directors; and (ii) a third-party valuation in respect of these transactions from an appropriately qualified independent adviser.

Loan to Medical Equipment Solutions Limited ("MESL")

In June 2017, the Company loaned £1,380,000 to MESL, whose Chairman was Neil Roberts, who was chairman of SQN Capital Management, LLC at that time.  The loan bore interest at 10.0% per annum and was for a period of five years from the date of drawdown.  The loan was to be repaid via 60 monthly payments. The loan was repaid early in March 2020. No loan interest was earned in the year (2020: £57,000), and no loan interest was outstanding at 30 June 2021 (2020: £nil).  At 30 June 2021, the balance of the loan was £nil (2020: £nil).

The Directors and the Investment Manager are also considered to be related parties. See notes 7 and 8 for further details.

7. Key contracts

a)  Investment Manager

On 5 June 2020, the Company novated the contract to manage the portfolio to KKV Investment Management Limited, following the management team into their new entity from the Former Investment Manager (SQN UK).

The Investment Manager has responsibility for managing the Company's portfolio.  For their services, until 16 September 2020, the Investment Manager was entitled to a management fee (on the same terms as the Former Investment Manager) at a rate equivalent to the following schedule (expressed as a percentage of NAV per annum, before deduction of accruals for unpaid management fees for the current month):  · 1.0% per annum for NAV lower than or equal to £250 million;  · 0.9% per annum for NAV greater than £250 million and lower than or equal to £500 million; and  · 0.8% per annum for NAV greater than £500 million. From 17 September 2020, the 1.0% per annum base management fee was reduced as follows: · for 12 months from 17 September 2020 to 16 September 2021, to 0.75% per annum of the Company's NAV; and · from 17 September 2021, to 0.55% of the Company's NAV. The management fee is payable monthly in arrears on the last calendar day of each month. During the year, a total of £309,000 (all KKV) (2020: £483,000 (SQN UK, £452,000 and KKV, £31,000)) was incurred in respect of management fees, of which £25,000 was payable at the reporting date (all KKV) (2020: £37,000 (SQN UK, £6,000 and KKV, £31,000)).

Performance fee From 17 September 2020, the Investment Manager is entitled to a performance fee. The performance fee is calculated using the most recent NAV prior to the Company failing the June 2020 Continuation Vote (being the NAV as at 31 May 2020) as the benchmark NAV (the "Benchmark NAV").  If 99% of the Benchmark NAV is returned to Shareholders by way of dividend, share buy backs or other methods of return of capital within 12 months from 17 September 2020 then a performance fee of 0.6% of the value returned to Shareholders would be payable to KKV.  This will be reduced by 0.1% for every 1% less than 99% of Benchmark NAV that is returned to Shareholders. Should the time taken to realise the Portfolio exceed 12 months from 17 September 2020, then for the period from 17 September 2021 to 17 September 2022, the incentive fee reduces by 33% (so that, for example if 99% of Benchmark NAV is returned by month 17, the performance fee would be two-thirds of 0.6%).

The introduction of an outperformance fee, under the terms of the amended Investment Management Agreement, states that KKV will be entitled to 10% of all funds returned to Shareholders in excess of the Benchmark NAV within 12 months from 17 September 2020, reducing to 5% within 12-24 months.

During the year, no performance fee was paid, or payable, to the Investment Manager (2020: £nil).

Termination of Investment Management Agreement

On 20 August 2021, the Company agreed with the Investment Manager and its AIFM to amend the investment management agreement and for the agreement to terminate with effect from midnight on 31 December 2021.

The key terms of the revised agreement are set out below: · Management fees payable by the Company to the Investment Manager of £20,500 per month from 1 August 2021 to 31 December 2021; · A payment of £20,000 in total payable by the Company to the Investment Manager, but conditional on a senior employee providing continued services to the Company to 31 December 2021; and · The agreement will terminate with effect from midnight on 31 December 2021. No party has the right to terminate the agreement prior to this date without cause. No fees shall be payable by either party on termination other than the amount referred to above. The Board believes that the revised Agreement provides the Company with certainty over the level of future management fees payable to the Investment Manager with the added flexibility of facilitating the Company becoming self-managed should the Board deem that appropriate, whilst providing for the ongoing management of the portfolio to 31 December 2021.  Overall, it allows for an orderly transition of the management of the portfolio to the Company.

Transaction costs Prior to the change in the investment policy, the Company incurred transaction costs for the purposes of structuring investments for the Company.  These costs formed part of the overall transaction costs that were capitalised at the point of recognition and were taken into account by the Former Investment Manager when pricing a transaction. When structuring services were provided by the Former Investment Manager or an affiliate of them, they were entitled to charge an additional fee to the Company equal to up to 1.0% of the cost of acquiring the investment (ignoring gearing and transaction expenses).  This cost was not charged in respect of assets acquired from the Former Investment Manager, the funds they managed or where they or their affiliates did not provide such structuring advice.

The Former Investment Manager agreed to bear all the broken and abortive transaction costs and expenses incurred on behalf of the Company.  Accordingly, the Company agreed that the Former Investment Manager may retain any commitment commissions received by the Former Investment Manager in respect of investments made by the Company, save that if such commission on any transaction were to exceed 1.0% of the transaction value, the excess would be paid to the Company.

During the year, transaction costs of £46,000 (2020: £147,000) were amortised.

b) Administration fees

Elysium Fund Management Limited ("Elysium") is entitled to an administration fee of £100,000 per annum in respect of the services provided in relation to the administration of the Company, together with time-based fees in relation to work on investment transactions.  During the year, a total of £130,000 (2020: £117,000) was incurred in respect of administration fees, of which £37,000 (2020: £28,000) was payable at the reporting date.

8. Directors' remuneration

During the year, a total of £119,000 (2020: £94,000) was incurred in respect of Directors' remuneration, none of which was payable at the reporting date (2020: none).  No bonus or pension contributions were paid or payable on behalf of the Directors.  Further details can be found in the Directors' Remuneration Report in the Annual Report and Financial Statements.

9. Key management and employees
The Company had no employees during the year (2020: none). Therefore, there were no key management (except for the Directors) or employees during the year.
The following dividends were paid to the Directors during the year by virtue of their holdings of Ordinary Shares (these dividends were not additional remuneration):
David Stevenson	£1,958 (2020: £1,417)
Gaynor Coley	£206 (2020: £143)
Ken Hillen (resigned 26 May 2020)	n/a (2020: £291)

10. Auditor's remuneration

For the year ended 30 June 2021, total fees, plus VAT, charged by MKS, together with amounts accrued at 30 June 2021, amounted to £46,000 (2020: £40,000 to RSM UK Audit LLP), all of which related to audit services (2020: £40,000). As at 30 June 2021, £46,000 was due to MKS and £16,000 was due to RSM UK Audit LLP (2020: £40,000 due to RSM UK Audit LLP).

11. Other expenses
	Year ended 30 June 2021	Year ended 30 June 2020
	£'000	£'000
Registrar fees	49	36
Audit fees (note 10)	46	40
Listing fees	16	18
Other expenses	15	33
Directors' national insurance	12	26
Accountancy and taxation fees	9	11
	------------	------------
	147	164
	------------	------------

12. Taxation
The Company has received confirmation from HMRC that it satisfied the conditions for approval as an investment trust, subject to the Company continuing to meet the eligibility conditions in s.1158 of the Corporation Tax Act 2010 and the ongoing requirements for approved investment trust companies in Chapter 3 of Part 2 of the Investment Trust (approved Company) Tax Regulations 2011 (Statutory Instrument 2011.2999).  The Company intends to retain this approval and self-assesses compliance with the relevant conditions and requirements. As an investment trust the Company is exempt from UK corporation tax on its chargeable gains.  The Company is, however, liable to UK corporation tax on its income.  However, the Company has elected to take advantage of modified UK tax treatment in respect of its "qualifying interest income" in order to deduct all, or part, of the amount it distributes to Shareholders as dividends as an "interest distribution".
		Year ended 30 June 2021	Year ended 30 June 2020
		£'000	£'000
	Reconciliation of tax charge:
	Loss before taxation	(11,017)	(913)
		------------	------------
	Tax at the standard UK corporation tax rate of 19% (2020: 19%)	(2,093)	(173)
	Effects of:
	-  Non-taxable investment gains and losses	2,509	743
	-  Interest distributions	(416)	(570)
		------------	------------
	Total tax expense	-	-
		------------	------------
	Domestic corporation tax rates in the jurisdictions in which the Company operated were as follows:
		Year ended 30 June 2021	Year ended 30 June 2020
	United Kingdom	19%	19%
	Guernsey	nil	nil
	Due to the Company's status as an investment trust and the intention to continue to meet the required conditions, the Company has not provided for deferred tax on any capital gains and losses.

13. Loss per Ordinary Share

The loss per Ordinary Share of 20.92p (2020: loss per Ordinary Share of 1.73p) is based on a loss attributable to the owners of the Company of £11,017,000 (2020: Loss of £913,000) and on a weighted average number of 52,660,350 (2020: 52,660,350) Ordinary Shares in issue since Admission .  There is no difference between the basic and diluted earnings per share.

14. Loans at amortised cost
		Year ended  30 June 2021	Year ended  30 June 2020
		£'000	£'000
Loans		28,920	45,944
Unrealised loss*		(14,251)	(3,311)
		------------	------------
Balance at year end		14,669	42,633
		------------	------------
Loans:	Non-current	7,336	31,942
	Current	7,333	10,691
		------------	------------
Loans at amortised cost and cash held on client accounts with platforms		14,669	42,633
		------------	------------
*Unrealised loss
Foreign exchange on non-Sterling loans		(158)	1,125
Impairments of financial assets		(14,093)	(4,436)
		------------	------------
Unrealised loss		(14,251)	(3,311)
		------------	------------
The movement in unrealised gains/losses on loans comprised:
		Year ended  30 June 2021	Year ended  30 June 2020
		£'000	£'000
Movement in foreign exchange on non-Sterling loans		(1,283)	410
Movement in i mpairment losses on financial assets (or loans)		(9,657)	(3,299)
		------------	------------
Movement in unrealised gains and losses on loans		(10,940)	(2,889)
		------------	------------

The movement in the impairment for the year comprised:
	Year ended  30 June 2021	Year ended  30 June 2020
	£'000	£'000
Impairment of interest income	(877)	-
Impairment losses on financial assets (or loans)	(9,657)	(3,299)
	------------	------------
Total movement in impairment in the year	(10,534)	(3,299)
	------------	------------

The weighted average interest rate of the loans as at 30 June 2021 was 6.48% (2020: 10.44%).

The table below details expected credit loss provision ("ECL") of financial assets in each stage at 30 June 2021:
		30 June 2021				30 June 2020
		Stage 1	Stage 2	Stage 3	Total	Stage 1	Stage 2	Stage 3	Total
		£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Direct loans [1]		4,940	5,633	12,637	23,210	34,419	-	-	34,419
ECL on direct loans		(14)	(451)	(8,228)	(8,693)	(17)	-	-	(17)
		------------	------------	------------	------------	------------	------------	------------	------------
Direct loans net of the ECL		4,926	5,182	4,409	14,517	34,402	-	-	34,402
		------------	------------	------------	------------	------------	------------	------------	------------
Platform loans [1]		-	-	5,508	5,508	7,214	-	5,346	12,560
ECL on platform loans		-	-	(5,400)	(5,400)	(7)	-	(4,412)	(4,419)
		------------	------------	------------	------------	------------	------------	------------	------------
Platform loans net of the ECL		-	-	108	108	7,207	-	934	8,141
		------------	------------	------------	------------	------------	------------	------------	------------
Accrued interest		175	-	7	182	1,585	-	-	1,585
		------------	------------	------------	------------	------------	------------	------------	------------
Total loans [1]		4,940	5,633	18,145	28,718	41,633	-	5,346	46,979
Total ECL		(14)	(451)	(13,628)	(14,093)	(24)	-	(4,412)	(4,436)
		------------	------------	------------	------------	------------	------------	------------	------------
Total net of the ECL		4,926	5,182	4,517	14,625	41,609	-	934	42,543
		------------	------------	------------	------------	------------	------------	------------	------------
[1]	These are the principal amounts outstanding at 30 June 2021 and do not include the capitalised transaction fees, which are not subject to credit risk.  At 30 June 2021, the amortised cost of the capitalised transaction fees totalled £44,000 (2020: £90,000).

The table below details the movements in the year ended 30 June 2021 of the principal amounts outstanding and the ECL on those loans:

		Non-credit impaired				Credit impaired
		Stage 1		Stage 2		Stage 3		Total
		Principal outstanding [1]	Allowance for ECL	Principal outstanding [1]	Allowance for ECL	Principal outstanding [1]	Allowance for ECL	Principal outstanding [1]	Allowance for ECL
		£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
At 1 July 2020		41,633	(24)	-	-	5,346	(4,412)	46,979	(4,436)
Transfers from: -  stage 1 to stage 2 -  stage 1 to stage 3		(10,000) (19,552)	5 11	10,000 -	(5) -	- 19,552	- (11)	- -	- -
Net re-measurement of ECL arising from transfer of stage		-	-	-	(795)	-	(9,579)	-	(10,374)
Net new and further lending/repayments, and foreign exchange movements		(5,736)	(1,411)	(4,367)	349	(6,271)	(108)	(16,374)	(1,170)
Loans written-off in the year		(1,405)	1,405	-	-	(482)	482	(1,887)	1,887
		------------	------------	------------	------------	------------	------------	------------	------------
At 30 June 2021		4,940	(14)	5,633	(451)	18,145	(13,628)	28,718	(14,093)
		------------	------------	------------	------------	------------	------------	------------	------------
[1]	These are the principal amounts outstanding at 30 June 2021 and do not include the capitalised transaction fees, which are not subject to credit risk.  At 30 June 2021, the amortised cost of the capitalised transaction fees totalled £44,000.

The table below details the movements in the year ended 30 June 2020 of the principal amounts outstanding and the ECL on those loans:

		Non-credit impaired					Credit impaired
		Stage 1		Stage 2			Stage 3			Total
		Principal outstanding [1]	Allowance for ECL	Principal outstanding [1]	Allowance for ECL		Principal outstanding [1]	Allowance for ECL		Principal outstanding [1]	Allowance for ECL
		£'000	£'000	£'000	£'000		£'000	£'000		£'000	£'000
At 1 July 2019		44,617	(28)	3,117	(735)		426	(374)		48,160	(1,137)
Transfers from: -  stage 1 to stage 3		(2,066)	2	-	-		2,066	(2)		-	-
-  stage 2 to stage 3		-	-	(3,117)	735		3,117	(735)		-	-
Net re-measurement of ECL arising from transfer of stage		-	-	-	-		-	(3,584)		-	(3,584)
Net new and further lending/repayments, and foreign exchange movements		(918)	2	-	-		5	15		(913)	17
Loans written-off in the year		-	-	-	-		(268)	268		(268)	268
		------------	------------	------------	------------		------------	------------		------------	------------
At 30 June 2020		41,633	(24)	-	-		5,346	(4,412)		46,979	(4,436)
		------------	------------	------------	------------		------------	------------		------------	------------
[1]	These are the principal amounts outstanding at 30 June 2020 and do not include the capitalised transaction fees, which are not subject to credit risk.  At 30 June 2020, the amortised cost of the capitalised transaction fees totalled £90,000.
An increase of 1% of total gross exposure into stage 3 (from stage 1) would result in an increase in ECL impairment allowance of £43,000 (2020: An increase of 1% of total gross exposure into stage 2 (from stage 1) would result in an increase in ECL impairment allowance of £11,000) based on applying the difference in average impairment coverage ratios to the movement in gross exposure.
At 30 June 2021, the Board considered £14,093,000 (2020: £4,436,000) of loans to be impaired:
						30 June 2021			30 June 2020
						£'000			£'000
Direct SME loans						8,693			17
Platform loans						5,400			4,419
						------------			------------
Total impairment						14,093			4,436
						------------			------------
During the year, £1,887,000 (2020: £268,000) of loans were written off and included within realised (loss)/gain on disposal of loans in the Statement of Comprehensive Income.

See note 3b and note 4i regarding the process of assessment of loan impairment.

The carrying values of the loans at amortised cost (excluding capitalised transaction costs) are deemed to be a reasonable approximation of their fair values.

15. Investments at fair value through profit or loss
	Year ended 30 June 2021	Year ended 30 June 2020
	£'000	£'000
Balance brought forward	251	232
Disposals in the year	(253)	-
Realised gain on disposal of investments at fair value through profit or loss	94	-
Movement in unrealised gain on investments at fair value through profit or loss	(92)	19
	------------	------------
Balance at year end	-	251
	------------	------------
Cost at year end	-	159
	------------	------------
The investment at fair value through profit or loss related to an investment in a Luxembourg fund which was sold during the year.  For further information on the investments at fair value through profit or loss, see note 16.

	16. Fair value of financial instruments
	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).
	Financial assets and liabilities designated as at fair value through profit or loss At 30 June 2021, the financial instruments designated at fair value through profit or loss were as follows:
		30 June 2021				30 June 2020
		Level 1	Level 2	Level 3	Total	Level 1	Level 2	Level 3	Total
Financial assets/(liabilities)		£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Unlisted equity shares		-	-	-	-	-	-	251	251
Derivative financial instruments (note 17)		-	-	-	-	-	(6)	-	(6)
		----------	----------	----------	----------	----------	----------	----------	----------
Total financial assets/(liabilities) designated as at fair value through profit or loss		-	-	-	-	-	(6)	251	245
		----------	----------	----------	----------	----------	----------	----------	----------

Level 2 financial instruments included foreign currency forward contracts.  They were valued using observable inputs (in this case foreign currency spot rates).

Level 3 financial instruments included unlisted equity shares. Net asset value was considered to be an appropriate approximation of fair value as, if the Company were to dispose of the holdings, it would expect to do so at, or around, net asset value.

Transfers between levels There were no transfers between levels in the year (2020: none).

	Financial assets and liabilities not designated as at fair value through profit or loss
The carrying values of the loans at amortised cost (excluding capitalised transaction costs) are deemed to be a reasonable approximation of their fair values.  The carrying values of all other assets and liabilities not designated as at fair value through profit or loss are deemed to be a reasonable approximation of their fair values due to their short duration.

17. Derivative financial instruments

In order to limit the exposure to foreign currency risk, the Company had previously entered into hedging contracts. However, in September 2020, the Company closed out its foreign currency forward contracts and it is not intended to enter into foreign exchange hedging contracts in the future. The Company realised a gain of £269,000 (2020: loss of £852,000) on forward foreign exchange contracts that settled during the year. As at 30 June 2021, there were no open forward foreign exchange contracts (2020: £(6,000)).

18. Other receivables and prepayments
	30 June 2021	30 June 2020
	£'000	£'000
Accrued interest	182	1,585
Prepayments	6	27
Other receivables	1	13
	------------	------------
	189	1,625
	------------	------------

The carrying values of the accrued interest and other receivables are deemed to be reasonable approximations of their fair values.

19. Other payables and accruals
	30 June 2021	30 June 2020
	£'000	£'000
Audit fee	62	40
Administration fee	37	28
Management fee	25	37
Other payables and accruals	20	21
Directors' national insurance	4	2
Legal fees	-	36
	------------	------------
	148	164
	------------	------------

The carrying values of the other payables and accruals are deemed to be reasonable approximations of their fair values.

20. Reconciliation of liabilities arising from financing activities

IAS 7 requires the Company to detail the changes in liabilities arising from financing activities, including both cash and non-cash changes.  Liabilities arising from financing activities are those for which cash flows were, or future cash flows will be, classified in the Company's statement of cash flows as cash flows from financing activities. As at 30 June 2021, the Company had no liabilities that would give rise to cash flows from financing activities (2020: none).

21 . Share capital
	30 June 2021	30 June 2020
	£'000	£'000
Authorised share capital:
Unlimited number of Ordinary Shares of 1 pence each	-	-
43,857,133 B Shares of £1 each (2020: nil)	43,857	-
Unlimited C Shares of 10 pence each	-	-
Unlimited Deferred Shares of 1 pence each	-	-
50,000 Management Share of £1 (2020: 50,000 of £1 each)	50	50
	------------	------------

	30 June 2021	30 June 2020
	£'000	£'000
Called up share capital:
52,660,350 Ordinary Shares of 1 pence each	527	527
1 Management Share of £1 (2020: 50,000 of £1 each)	-	50
	------------	------------
	527	577
	------------	------------

Management Shares

The Management Shares are entitled (in priority to any payment of dividend of any other class of share) to a fixed cumulative preferential dividend of 0.01% per annum on the nominal amount of the Management Shares.

The Management Shares do not carry any right to receive notice of, nor to attend or vote at, any general meeting of the Company unless no other shares are in issue at that time.  The Management Shares do not confer the right to participate in any surplus of assets of the Company on winding-up, other than the repayment of the nominal amount of capital.

During the year, 49,999 Management Shares were bought back for £49,999 and cancelled.

B Shares

The B Shares are entitled (in priority to any payment of dividend of any other class of share, with the exception of the Management Shares) to a fixed cumulative preferential dividend of 1% per annum on the nominal amount of the B Shares, such dividend to be paid annually on the date falling six months after the date on which the B Shares are issued and thereafter on each anniversary.  The B Shares do not confer the right to participate in any surplus of assets of the Company on winding-up, other than the repayment of the nominal amount of capital.

During the year 10,269,000 B Shares of £1 each were issued and immediately redeemed by the Company in accordance with the B Share Scheme approved by Shareholders at a General Meeting held on 23 March 2021 (see note 5 for further details). As the B Shares were redeemed immediately upon issue, no cumulative preferential dividend was earned on those shares.

22. Other reserves
			Special distributable reserve [1] / [3]		Capital redemption reserve [3]	Profit and loss account [2]
						Distributable	Non-distributable	Total
			£'000		£'000	£'000	£'000	£'000
At 30 June 2019			50,253		-	-	(701)	49,552
Realised revenue profit			-		-	3,000	-	3,000
Realised investment gains and losses			-		-	(1,388)	-	(1,388)
Unrealised investment gains and losses			-		-	-	(2,525)	(2,525)
Dividends paid			(2,072)		-	(1,612)	-	(3,684)
			------------		------------	------------	------------	------------
At 30 June 2020			48,181		-	-	(3,226)	44,955
Realised revenue profit			-		-	2,190	-	2,190
Realised investment gains and losses			-		-	(2,181)	-	(2,181)
Unrealised investment gains and losses			-		-	-	(11,026)	(11,026)
Dividends paid			(4,324)		-	(766)		(5,090)
B Shares issued during the year (notes 5 and 21)			(10,269)		-	-	-	(10,269)
B Shares redeemed during the year (notes 5 and 21) [3]				(10,269)	10,269	-	-	-
Management Share buy backs			(50)		50	-	-	-
			------------		------------	------------	------------	------------
At 30 June 2021			23,269		10,319	(757)	(14,252)	18,579
			------------		------------	------------	------------	------------
	[1]	During the period ended 30 June 2016, and following the approval of the Court, the Company cancelled the share premium account and transferred £51,143,000 to a special distributable reserve, being premium on issue of shares of £52,133,000 less share issue costs of £990,000.  The special distributable reserve is available for distribution to Shareholders.
	[2]	The profit and loss account comprises both distributable and non-distributable elements, as defined by Company Law.  Realised elements of the Company's profit and loss account are classified as "distributable", whilst unrealised investment gains and losses are classified as "non-distributable".
	[3]	The B Shares were issued out of the special distributable reserve, then the special distributable reserve was utilised again when the B Shares were redeemed, the B Share capital cancelled and an equal amount credited to the capital redemption reserve (see notes 5 and 21)
	With the exception of investment gains and losses, all of the Company's profit and loss items are of a revenue nature as it does not allocate any expenses to capital.

23. Net asset value per Ordinary Share
The net asset value per Ordinary Share is based on the net assets attributable to the owners of the Company of £19,106,000 (2020: £45,532,000), less £1 (2020: £50,000), being amounts owed in respect of Management Shares, and on 52,660,350 (2020: 52,660,350) Ordinary Shares in issue at the year end.
Reconciliation to NAV announced on 11 August 2021 Subsequent to the year end, the Company was informed that a borrower had not finalised refinancing ahead of the 30 September 2021 repayment date and, consequently, repayment of the loan was to be delayed.  As a result, the expected credit loss as at 30 June 2021 for the loan has been amended, resulting in a difference in the net asset value disclosed in these financial statements from that announced on 11 August 2021, as follows:
	30 June 2021	30 June 2021
	£'000	pence per share
Net asset value announced on 11 August 2021	19,539	37.10
Increase in expected credit loss	(433)	(0.82)
	------------	------------
	19,106	36.28
	------------	------------

24. Financial Instruments and Risk Management

The Investment Manager manages the Company's portfolio to provide Shareholders with attractive risk adjusted returns, principally in the form of regular, sustainable dividends, through investment predominantly in a range of secured loans and other secured loan-based instruments originated through a variety of channels and diversified by way of asset class, geography and duration. Prior to the change in investment policy on 17 September 2020, the Company sought to ensure that diversification of its portfolio was maintained, 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, Broker, 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.  The risks have not changed from those detailed on pages 20 to 30 in the Company's Prospectus, which is available on the Company's website, and as updated in the circular of 20 August 2020.

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 positions in several currencies that tend to move together.

In a Managed Wind-Down, the value of the Portfolio will be reduced as investments are realised and concentrated in fewer holdings, and the mix of asset exposure will be affected accordingly.

With the aim of maintaining a diversified investment portfolio, and thus mitigating concentration risks, the Company had established (prior to the change in the investment policy on 17 September 2020) the following investment restrictions in respect of the general deployment of assets:

Investment Restriction	Investment Policy
Geography - Exposure to UK loan assets - Minimum exposure to non-UK loan assets	Minimum of 60% 20%
Duration to maturity - Minimum exposure to loan assets with duration of less than 6 months - Maximum exposure to loan assets with duration of 6 - 18 months and 18 - 36 months - Maximum exposure to loan assets with duration of more than 36 months	None None 50%
Maximum single investment	10%
Maximum exposure to single borrower or group	10%
Maximum exposure to loan assets sourced through single alternative lending platform or other third party originator	25%
Maximum exposure to any individual wholesale loan arrangement	25%
Maximum exposure to loan assets which are neither sterling-denominated nor hedged back to sterling	15%
Maximum exposure to unsecured loan assets	25%
Maximum exposure to assets (excluding cash and cash-equivalent investments) which are not loans or investments with loan-based investment characteristics	10%

The Company complied with the investment restrictions up to the change in investment policy on 17 September 2020, except that, on 9 September 2020, in preparation for the upcoming change in investment policy, additional foreign currency forward contracts were entered into in order to equally and oppositely match the open contracts at that date.

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 market positions in the face of price movements.  The investments at fair value through profit or loss (see notes 15 and 16) are exposed to price risk and it is not the intention to mitigate the price risk. At 30 June 2021, if the valuation of the investments at fair value through profit or loss had moved by 5% with all other variables remaining constant, the change in net assets and profit/(loss) would amount to approximately +/- £nil (2020: +/- £13,000).  The maximum price risk resulting from financial instruments is equal to the £nil (2020: £251,000) carrying value of the investments at fair value through profit or loss.

(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.

The impact of foreign currency fluctuations during the year comprised:
	Year ended  30 June 2021	Year ended  30 June 2020
	£'000	£'000
Movement in unrealised gains and losses on loans due to movement in foreign exchange on non-Sterling loans	(1,283)	410
Net foreign exchange gain/(loss)	3	(16)
	------------	------------
Foreign currency (loss)/gain in the year excluding the effect of foreign currency hedging	(1,280)	394
Movement in unrealised gain on foreign currency derivative financial instruments	6	345
Realised gain/(loss) on foreign currency derivative financial instruments	269	(852)
	------------	------------
Foreign currency loss in the year including the effect of foreign currency hedging	(1,005)	(113)
	------------	------------

As at 30 June 2021, a proportion of the net financial assets of the Company, excluding the foreign currency forward contracts (where applicable for 30 June 2020), were denominated in currencies other than Sterling as follows:
	Investments at fair value through profit or loss	Loans and receivables	Cash and cash equivalents	Other payables and accruals	Exposure	Foreign currency forward contracts	Net exposure
30 June 2021	£'000	£'000	£'000	£'000	£'000	£'000	£'000
US Dollars	-	2,713	1	-	2,714	-	2,714
Euros	-	4,293	-	-	4,293	-	4,293
	---------------	---------------	---------------	---------------	---------------	---------------	---------------
	-	7,006	1	-	7,007	-	7,007
	---------------	---------------	---------------	---------------	---------------	---------------	---------------
30 June 2020
US Dollars	-	7,552	-	-	7,552	(7,531)	21
Euros	-	4,316	1	-	4,317	(4,121)	196
	---------------	---------------	---------------	---------------	---------------	---------------	---------------
	-	11,868	1	-	11,869	(11,652)	217
	---------------	---------------	---------------	---------------	---------------	---------------	---------------

In order to limit the exposure to foreign currency risk, the Company had previously entered into hedging contracts. However, in September 2020, the Company closed out its foreign currency forward contracts and it is not intended to enter into foreign exchange hedging contracts in the future. At 30 June 2021, the Company held no open foreign currency forward contracts (30 June 2020: foreign currency forward contracts to sell US$9,340,000 and €4,550,000).

At 30 June 2021, if the exchange rates for US Dollars and Euros had strengthened/weakened by 5% against Sterling with all other variables remaining constant, net assets at 30 June 2021 and the profit/(loss) for the year ended 30 June 2021 would have increased/(decreased) by £369,000/£(334,000) (2020: increased/(decreased) by £11,000/£(10,000)), after accounting for the effects of the hedging contracts mentioned above, where applicable.

(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.  However, due to the fixed rate nature of the majority of the loans, cash and cash equivalents of £4,396,000 (2020: £1,193,000) were the only interest bearing financial instruments subject to variable interest rates at 30 June 2021.  Therefore, if interest rates had increased/decreased by 50 basis points, with all other variables held constant, the change in value of interest cash flows of these assets in the year would have been £22,000 (2020: £6,000).

	Fixed interest	Variable interest	Non-interest bearing	Total
30 June 2021	£'000	£'000	£'000	£'000
Financial assets
Loans [1]	14,669	-	-	14,669
Other receivables	-	-	183	183
Cash and cash equivalents	-	4,396	-	4,396
	------------	------------	------------	------------
Total financial assets	14,669	4,396	183	19,248
	------------	------------	------------	------------
Financial liabilities
Other payables	-	-	(148)	(148)
	------------	------------	------------	------------
Total financial liabilities	-	-	(148)	(148)
	------------	------------	------------	------------
Total interest sensitivity gap	14,669	4,396	35	19,100
	------------	------------	------------	------------

30 June 2020
Financial assets
Loans [1]		42,633	-	-	42,633
Investments at fair value through profit or loss		-	-	251	251
Other receivables		-	-	1,598	1,598
Cash and cash equivalents		-	1,193	-	1,193
		------------	------------	------------	------------
Total financial assets		42,633	1,193	1,849	45,675
		------------	------------	------------	------------
Financial liabilities
Other payables		-	-	(164)	(164)
Derivative financial instruments		-	-	(6)	(6)
		------------	------------	------------	------------
Total financial liabilities		-	-	(170)	(170)
		------------	------------	------------	------------
Total interest sensitivity gap		42,633	1,193	1,679	45,505
		------------	------------	------------	------------
[1]	Of the loans of £14,669,000 (2020: £42,633,000), one loan amounting to £4,119,000 (2020: £10,527,000) included both fixed elements and variable elements, based on the performance of the borrowers' underlying portfolios of loans.

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 moves in interest rates.

Although it has not done so to date, t he 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 30 June 2021, credit risk arose principally from cash and cash equivalents of £4,396,000 (2020: £1,193,000) and balances due from the platforms and SMEs of £14,669,000 (2020: £42,633,000).  The Company seeks to trade only with reputable counterparties that the Investment Manager believes to be creditworthy.

The Company's credit risks principally arise through exposure to loans provided by the Company, either directly or through platforms.  These loans are subject to the risk of borrower default.  Where a loan has been made by the Company through a platform, the Company will only receive payments on those loans if the corresponding borrower through that platform makes payments on that loan.  The Investment Manager has sought to reduce the credit risk by obtaining security on the majority of the loans and by investing across various platforms, geographic areas and asset classes, thereby ensuring diversification and seeking to mitigate concentration risks, a s stated in the "risk concentration" section earlier in this note.

The cash pending investment or held on deposit under the terms of an investment instrument may be held without limit with a financial institution with a credit rating of "single A" (or equivalent) or higher 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 any hedging transactions . Please see note 3b and note 4 for further information on credit risk and note 14 for information on the loans at amortised cost.

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 30 June 2021 was low since the ratio of cash and cash equivalents to unmatched liabilities was 30:1 (2020: 7:1).

The Investment Manager managed the Company's liquidity risk by investing primarily in a diverse portfolio of loans, in line with the Prospectus and as stated in the "risk concentration" section earlier in this note.  However, i n a Managed Wind-Down, the value of the Portfolio will be reduced as investments are realised and concentrated in fewer holdings, and the mix of asset exposure and liquidity will be affected accordingly. The maturity profile of the portfolio is as follows:
	30 June 2021	30 June 2020
	Percentage	Percentage
0 to 6 months	54.7	5.4
6 months to 18 months	7.6	30.1
18 months to 3 years	27.9	35.5
Greater than 3 years	9.8	29.0
	------------	------------
	100.0	100.0
	------------	------------

Capital management

During the year, the Board's policy was to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future operation of the Company.  The Company's capital comprises issued share capital, retained earnings, a capital redemption reserve (see note 3(i)) and a distributable reserve created from the cancellation of the Company's share premium account.  To maintain or adjust the capital structure, the Company could issue new Ordinary Shares, B Shares and/or C Shares, buy back shares for cancellation, buy back shares to be held in treasury or redeem B Shares.  The Company returned capital to Shareholders through the use of a B Share Scheme, which was approved by Shareholders on 23 March 2021 (see note 5). During the year ended 30 June 2021, the Company did not issue any new Ordinary or C shares, nor did it buy back any Ordinary Shares for cancellation or to be held in treasury (2020: none).  49,999 Management Shares were bought back for £49,999 and cancelled (see note 22). During the year ended 30 June 2021, 10,269,000 B Shares were issued and bought back for £10,269,000 (see note 5), and a further B Share Scheme redemption of £3,160,000 (6.00p per Ordinary Share) was made on 23 July 2021. The Company is subject to externally imposed capital requirements in relation to its statutory requirement relating to dividend distributions to Shareholders.  The Company meets the requirement by ensuring it distributes at least 85% of its distributable income by way of dividend.

Following the Shareholder's approval of the change to investment policy and the managed wind-down of the Company, the Board manages the Company's capital to enable it to make quarterly dividend payments for the time being (instead of the previous monthly dividends), although this will be kept under review, and the return of capital via the B Share Scheme.  The Company will also look to structure its dividend payments to maintain investment trust status for so long as it remains listed.

25. Contingent assets and contingent liabilities

There were no contingent assets or contingent liabilities in existence at the year end (2020: none).

26. Events after the reporting period

A B Share Scheme redemption of £3,160,000 (6.00p per Ordinary Share) was made on 23 July 2021.

On 20 August 2021, the Company agreed with the Investment Manager and its AIFM to amend the investment management agreement and for the agreement to terminate with effect from midnight on 31 December 2021 (see note 7a).

Subsequent to the year end, the Company was informed that a borrower had not finalised refinancing ahead of the 30 September 2021 repayment date and, consequently, repayment of the loan was to be delayed.  As a result, the expected credit loss as at 30 June 2021 for the loan has been amended, resulting in a difference in the net asset value disclosed in these financial statements from that announced on 11 August 2021 (see the reconciliation in note 23).

There were no other significant events after the reporting period.

27. Parent and Ultimate Parent

The Directors do not believe that the Company has an individual Parent or Ultimate Parent, or an ultimate controlling party.

---  ENDS ---

 

END

 

 

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