Final Results

NOT FOR RELEASE, DISTRIBUTION OR PUBLICATION, IN WHOLE OR IN PART, IN OR INTO THE UNITED STATES OR TO US PERSONS.

 

Guernsey, 24 June 2016

 

Funding Circle SME Income Fund Limited

Publication of the Annual Report

 

Funding Circle SME Income Fund Limited (the "Company") has published its results for the financial period from 22 July 2015 to 31 March 2016. The Annual Report and Accounts 2016 are attached to this release and are available on the Company's website (www.fcincomefund.com).

 

 

CONTACTS

 

Richard Boleat, Chairman
+44 (0) 1534 615 656
Richard.Boleat@fcincomefund.com

 

Secretary and Administrator
Sanne Group (Guernsey) Limited
FundingCircle@sannegroup.com
+44 (0) 1481 739810

 

Corporate Brokers
Goldman Sachs International
Daniel Martin

Chris Emmerson
+44 (0) 20 7774 1000

 

Numis Securities
Nathan Brown
+44 (0) 20 7260 1000
n.brown@numis.com

 

Website www.fcincomefund.com

 

ABOUT FUNDING CIRCLE SME INCOME FUND

 

The Company is a registered closed-ended collective investment scheme registered pursuant to the Protection of Investors (Bailiwick of Guernsey) Law, 1987, as amended and the Registered Collective Investment Scheme Rules 2015 issued by the Guernsey Financial Services Commission (''GFSC'').

 

The Company's investment objective is to provide shareholders with a sustainable and attractive level of dividend income, primarily by way of investment in Credit Assets as defined in the Company's Prospectus.

 

IMPORTANT NOTICES

 

This announcement contains "forward-looking" statements, beliefs or opinions. These forward-looking statements involve known and unknown risks and uncertainties, many of which are beyond the control of the Company and all of which are based on its directors' current beliefs and expectations about future events. Forward-looking statements are sometimes identified by the use of forward-looking terminology such as "believes", "expects", "may", "will", "could", "should", "shall", "risk", "intends", "estimates", "aims", "plans", "predicts", "projects", "continues", "assumes", "positioned" or "anticipates" or the negative thereof, other variations thereon or comparable terminology, or by discussions of strategy, plans, objectives, goals, future events, assumptions or intentions. These forward-looking statements include all matters that are not historical facts. Forward-looking statements may and often do differ materially from actual results. They appear in a number of places throughout this announcement and include statements regarding the intentions, beliefs or current expectations of the Board or the Company with respect to future events and are subject to risks relating to future events and other risks, uncertainties and assumptions relating to the Company's business concerning, amongst other things, the financial performance, liquidity, prospects, growth and strategies of the Company. These forward-looking statements and other statements contained in this announcement regarding matters that are not historical facts involve predictions. No assurance can be given that such future results will be achieved; actual events or results may differ materially as a result of risks and uncertainties facing the Company. Such risks and uncertainties could cause actual results to vary materially from the future results indicated, expressed or implied in such forward-looking statements. The forward-looking statements contained in this announcement speak only as of the date of this announcement. Nothing in this announcement is, or should be relied on as, a promise or representation as to the future. The Company disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained in this announcement to reflect any change in its expectations or any change in events, conditions or circumstances on which such statements are based unless required to do so by applicable law, the Prospectus Rules, the Listing Rules or the Disclosure Rules and Transparency Rules of the FCA. No statement in this announcement is intended as a forecast or profit estimate.

 

Neither this announcement nor any copy of it may be made or transmitted into the United States of America (including its territories or possessions, any state of the United States of America and the District of Columbia) (the "United States"), or distributed, directly or indirectly, in the United States or to US Persons (as such term is defined in Regulation S under the US Securities Act of 1933, as amended (the "Securities Act"). Neither this announcement nor any copy of it may be taken or transmitted directly or indirectly into Australia, Canada, Japan or South Africa or to any persons in any of those jurisdictions, except in compliance with applicable securities laws. Any failure to comply with this restriction may constitute a violation of United States, Australian, Canadian, Japanese or South African securities laws. The distribution of this announcement in other jurisdictions may be restricted by law and persons into whose possession this announcement comes should inform themselves about, and observe, any such restrictions. This announcement does not constitute or form part of any offer or invitation to sell or issue, or any solicitation of any offer to purchase or subscribe for securities in the United States, Australia, Canada, Japan or South Africa or in any jurisdiction to whom or in which such offer or solicitation is unlawful.

 

Any securities mentioned in this announcement have not been and will not registered under the Securities Act, and may not be offered or sold in the United States absent registration or an applicable exemption from the registration requirements of the Securities Act.

 

This announcement has been issued by and is the sole responsibility of the Company. Each of Goldman Sachs International ("Goldman Sachs") and Numis Securities Limited ("Numis") (together the "Brokers") and their respective affiliates expressly disclaim any obligation or undertaking to update, review or revise any forward-looking statements contained in this announcement whether as a result of new information, future developments or otherwise.

 

Apart from the responsibilities and liabilities, if any, which may be imposed on the Brokers under a regulatory regime of any jurisdiction and where exclusion of liability under the relevant regulatory regime would be illegal, void or unenforceable, none of the Brokers or any of their respective affiliates accepts any responsibility whatsoever for, or makes any representation or warranty, express or implied, as to the contents of this announcement or for any other statement made or purported to be made by it, or on its behalf, in connection with the Company or any issue of securities mentioned in this announcement, nothing in this announcement will be relied upon as a promise or representation in this respect, whether or not to the past or future. Each of the Brokers and their respective affiliates accordingly disclaims all and any responsibility or liability, whether arising in tort, contract or otherwise (save as referred to above) in respect of this announcement or any such statement.

 

 

fUNDING CIRCLE SME INCOME FUND Limited

ANNUAL REPORT and AUDITED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIOD FROM 22 JULY 2015 TO 31 MARCH 2016

 

 

 

FORWARD-LOOKING STATEMENTS

This report includes statements that are, or may be considered, "forward-looking statements". The forward-looking statements can be identified by the use of forward-looking terminology, including the terms "believes", "estimates", "anticipates", "expects", "intends", "may", "will" or "should" or, in each case, their negative, or other variations or comparable terminology.  These statements are made by the Directors in good faith based on the information available to them up to the time of their approval of this report and such statements should be treated with caution due to the inherent uncertainties, including both economic and business risk factors, underlying any such forward-looking information.

 

SUMMARY INFORMATION

 

About the Company

Funding Circle SME Income Fund Limited (the "Company" or the "Fund") is a closed-ended investment company incorporated with liability limited by shares in Guernsey under The Companies (Guernsey) Law, 2008 (as amended), on 22 July 2015.

The Company issued 150 million Ordinary Shares of no par value each at an issue price of £1 per Ordinary Share.  On 30 November 2015, these shares were admitted to the Premium Segment of the Official List of the UK Financial Conduct Authority and to trading on the London Stock Exchange's main market (the "IPO").

The investment objective of the Company is to provide shareholders with a sustainable and attractive level of dividend income by lending, both directly and indirectly, to small businesses through Funding Circle's Marketplaces.  The Board believes that lending platforms with established infrastructure and scale of origination volumes are well placed to compete for loan originations against traditional financial institutions.  The Company has identified Funding Circle, which operates various Marketplaces, as a leader in the growing industry of alternative lending to small and medium entities ("SMEs"). 

In accordance with the Company's investment policy, the Company holds a number of its investments in loans through special purpose vehicles.  This annual report for the period ended 31 March 2016 (the "Annual Report") includes the results of Basinghall Lending Designated Activity Company ("Basinghall") and Tallis Lending Designated Activity Company ("Tallis").   The Company, Basinghall and Tallis are collectively referred to in this report as the "Group".

Financial Highlights for the Period ended 31 March 2016

Description	Performance
Cum Income Net Asset Value per Ordinary Share	98.85p
Ex Income Net Asset Value per Ordinary Share	98.00p
Ordinary Share Price	93.00p
Discount to Net Asset Value per Ordinary Share	(5.90%)
Market Capitalisation	£139.5mil
Total Return as a % of Net Asset Value	0.87%

 

36% Cash	18% US Loans		46% UK Loans	<1% CE Loans
·      The Company has successfully deployed £97.2 million of the £147.0 million capital raised (net of initial cost) during the period			·      Loans advanced to 1,245 small businesses in the UK, the US, Spain and the Netherlands
·      Positive net asset value return has been achieved since the Company started operations			·      Realised annualised loss rate was 0.2% of the portfolio value as at 31st March 2016

 

 

CHAIRMAN'S STATEMENT

 

Dear Shareholder,

I am glad to welcome you to the share register of the Company. Your Board was pleased that the Company's IPO closed above the target subscription level, in what were challenging market conditions. It is pleasing to note that at this very early stage, the Company's shares are trading at or around par to their net asset value, despite the pullback in stock prices that many yield-based closed ended funds have experienced since the turn of the year. 

Performance

This statement will inevitably be limited in scope, as it covers the accounting period from incorporation on 22 July 2015 until 31 March 2016, prior to the Company fully investing its assets. However, I am pleased to report that as of the date of this statement, more than 85% of the Company's assets have been invested in SME loans in the UK, the US and Continental Europe ("CE"), which are producing yields and experiencing delinquency levels in line with those anticipated at the time of the IPO. Your Board is keeping these key metrics under continuous review. Full details and analysis of the current loan portfolio at 31 March 2016 appears elsewhere in these audited consolidated financial statements. Our foreign exchange exposures arising from US and Continental European lending activities have been and will continue to be fully hedged back to Sterling. We expect to be substantially invested towards the end of June 2016.

Placing the Company's activities in context, economic conditions in developed markets appear set to remain benign in the short to medium term as a result of continuing loose monetary policy positions adopted by central banks. A meaningful uptick in rates over an extended time period, as futures markets continue to envisage, is not presently seen as a key risk indicator for the Company as it is likely to be accompanied by a firmer economic tone which would typically benefit our borrowers. A decline in economic activity would be of greater concern but we see no consistent signs of this in our chosen markets currently.

Leverage

At IPO, we elected to expressly limit the Company's use of leverage. We originally guided prospective investors towards 0.25x leverage of net asset value, with an ability for the board to exercise its discretion to move to 0.5x leverage. Having grown our portfolio of credit assets and closely monitored delinquency rate and trends, alongside keeping a close watch on economic and geopolitical influences on our asset class and geographical regions of operation, we felt comfortable in exercising our discretion to approve the use of leverage up to 0.5x net asset value, as a means of enhancing returns to investors within an acceptable risk framework. This exercise of our discretion applies to both conventional and implicit economic leverage.

European Investment Bank

On 17 June 2016, we reported to the market the purchase of a note issued by Finch Lending Designated Activity Company ("Finch") in the sum of £25 million ("the Finch Note"). This purchase represents our participation in our joint UK SME lending project with the European Investment Bank. Further details of the transaction appear elsewhere in this report. I am pleased to note that, consistent with our announcement on 18 March 2016, we anticipate that the combination of our platform originated loan positions and the Finch Note is anticipated to enable us to achieve the total return target that we set ourselves at IPO of between 8% and 9% per annum.

Our purchase of the Finch Note, whilst not representing "leverage" as contemplated in the IPO prospectus, does carry with it implicit leverage as to investment risk and return by virtue of its position in the capital structure of Finch. The Board has therefore resolved, in accordance with the exercise of its discretion as set out above, to allocate a portion of the Finch Note to the portfolio of assets to be originated as part of the Company's intended capital raising process as announced on 17 June 2016 and discussed further below. In the event that the Company does not raise more capital, the Board will seek to promptly dispose of part of the Class B Notes or the economic interests therein to third party investors to ensure that the Company's leverage will not exceed 0.5 times net asset value on a look-through basis.  As of the date of this statement, the Company has no borrowings.

Capital Management

We continue to receive encouraging indications of demand for the Company's shares from prospective investors. As a result, and after receiving advice from our bookrunners, the Board has determined that it is in the best interest of the Company to conduct a capital raising process, most likely in the form of a C share issue. As is usual in C share offerings, any funds raised will be deployed in a separate pool until the earlier of nine months or at such time as the funds have 90% invested, at which time they would be converted to Ordinary Shares, thus avoiding the performance drag on the Ordinary Shares that would otherwise derive from holding a substantial cash position pending investment. The C shares will be separately listed during the period prior to their conversion to Ordinary Shares. A further announcement will be made in due course.

Dividend Policy

We said at IPO that we were targeting an annual dividend of between 6 pence and 7 pence per Ordinary Share once fully invested. The Company's performance to date and the projected earnings over the next twelve months enabled us to declare an initial dividend of 1 pence per Ordinary Share. This initial dividend is part of an overall plan and we continue to anticipate paying dividends at a rate of 1.5 pence to 1.75 pence per Ordinary Share in respect of each subsequent quarter.  We expect that dividend yield on a cumulative basis will be 6% to 7% based on the current share price.  It is our intention to adopt a progressive dividend policy to the extent that the Company's future performance permits.

 

RICHARD BOLÉAT

Chairman of the Board of Directors

23 June 2016

 

 

STRATEGIC REPORT

 

Strategy and Business Model

The Company has been established to provide shareholders with a sustainable and attractive level of dividend income, primarily by way of investment in loans both directly through the Marketplaces operated by Funding Circle and indirectly, in each case as contemplated by the investment policy.  The Company has identified Funding Circle as a leader in the growing marketplace lending space with its established infrastructure, scale of origination volumes and expertise in accurately assessing loan applications. 

Investment Policy              

The Company intends to achieve its investment objective by investing in a diversified portfolio of Credit Assets, both directly and indirectly. The Company intends to hold loans through to maturity (subject to the making of indirect investments as described below).

Direct Investments

The Company acquires and holds US assets directly. 

Indirect Investments

Indirect investment in loans shall be made at such times and in such manner as the Board may determine, having regard at all times to the investment policy and any Portfolio Limits. Indirect investments may involve participation in securitisation structures, which may involve the securitisation of loans previously acquired by the Company (or an investing company) or the acquisition or participation by the Company in interests in loans which have not previously been funded or held by the Company (or by an investing company).  In either case, such investment may involve the acquisition, alongside one or more third parties, of debt or equity securities of whatever type or class (including in junior tranches) issued by special purpose vehicles or issuers established by any person.

As at 31 March 2016, the Company holds indirect investments in loans through the following investing companies:

Investing Company	Jurisdiction
Basinghall	United Kingdom
Tallis	Spain and the Netherlands

 

UK Investment	%	US Investment	%	CE Investment	%
Property development	18	Professional, scientific and technical services	22	Accomodation and food service activities	33
Wholesale and retail	15	Construction	15	Manufactoring	33
Property and construction	14	Retail trade	14	Wholesale and retail trade, repair of motor vehicles and motorcycles	33
Manufacturing and engineering	11	Healthcare and social assistance	8
Professional and business support	9	Wholesale trade	7
Professional services	6	Transporting and warehousing	6
IT and Telecommunications	6	Other services (except public administration)	5
Healthcare	4	Accomodation and food services	5
Leisure and hospitality	4	Finance and insurance	4
Other	13	Other	14

Basinghall and Tallis have been formed solely in connection with the implementation of the investment policy of the Company.

Loans acquired by Basinghall and Tallis (subject to the investment policy, any Portfolio Limits and Available Cash) are funded by advances made by the Company under note programmes.  The notes issued by Basinghall and Tallis are listed on the Irish Stock Exchange.

The assets held by each of Basinghall and Tallis are ring-fenced from other entities or special purpose vehicles and there is no cross-collateralisation between special purpose vehicles in which the Company invests.

Uninvested Cash

The Company may invest cash held for working capital purposes and pending investment or distribution in cash or cash equivalents, government or public securities, money market instruments, bonds, commercial paper or other debt obligations with banks or other counterparties having a "BBB" (or equivalent) or higher credit rating as determined by any internationally recognised rating agency selected by the Board (which may or may not be registered in the EU).

Principal Risk and Risk Management

There are a number of potential risks and uncertainties which could have a material impact on the Group's performance and could cause actual results to differ materially from expected and historical results.

The Board of Directors has overall responsibility for risk management and internal control within the context of achieving the Company's objectives. The Board agrees the strategy for the Company, approves the Company's risk appetite and monitors the risk profile of the Company. The Company also maintains a risk register to identify, monitor and control risk concentration. 

The Company established a risk matrix during the initial public offering ("IPO") process, consisting of the key risks and controls in place to mitigate those risks. The risk matrix provides a basis for the Audit Committee and the Board to regularly monitor the effective operation of the controls and to update the matrix when new risks are identified. The Board's responsibility for conducting a robust assessment of the principal risks are embedded in the Company's risk matrix and stress testing which helps position the Company to ensure compliance with the UK Corporate Governance Code's enhanced requirements.

The Company's investment administration functions have been outsourced to external service providers. Any failure by any external service provider to carry out its obligations could have a materially detrimental impact on the effective operation, reporting and monitoring of the Company's financial position. This may have an effect on the Company's ability to meet its investment objectives successfully. The Board receives and reviews third party reports for its principal external service providers. The Board may request a report on the operational effectiveness of controls in place at the service providers. The results of the Board's review are reported to the Audit Committee. The Board did not identify any significant weaknesses during the period and up to the date of this Annual Report.

The Board will continue to monitor the Company's systems of risk management and internal control and will continue to receive updates from the Company's external service providers to ensure that the principal risks and challenges faced by the Group are fully understood and managed appropriately.

An overview of the principal risks that the Board considers to be the main uncertainties currently faced by the Company are provided below, together with the mitigating actions being taken. The Directors have also linked the key performance indicators to the risks where relevant.  Risks arising from the Group's use of financial instruments are set out in note 15 of the financial statements. 

Principal risk	Mitigation and update of risk assessment	Link to KPI
Default risk   Borrowers' ability to comply with their payment obligations in respect of loans may deteriorate due to adverse changes to macro-economic factors.	The Board has set portfolio limits and monitors information provided by the Administrator and Funding Circle on a regular basis.   This risk has remained unchanged during the period.	Capital deployed Net return target Share price vs NAV per share Default rate
Insufficient loans originated   The Group may not achieve its target return due to lack of or reduction to loans available for the Group to invest in.	The Board monitors deployment on a regular basis and is in close dialogue with Funding Circle.   The risk remains unchanged during the period.	Capital deployed Net return target

Hedging

The Board's policy is to fully hedge currency exposure between Sterling and any other currency in which the Group's assets are denominated.  During the period ended 31 March 2016, the Board entered into forward foreign exchange contracts to minimise the risk of loss due to fluctuation of the Sterling to US Dollar exchange rate and the Sterling to Euro exchange rate in pursuance of this policy.  Foreign currency hedging activity is carried out by a specialist third party on behalf of the Company.

Financial Performance

The Board has focused on delivering on the targets set out in the Company's IPO Prospectus during its first period of operations.  Following the successful admission of the Company's shares to trading on the Main Market of the London Stock Exchange, deployment of capital in accordance with the Company's investment policy has been actively pursued.  The Board, working with Funding Circle and other service providers, continues to steer the Group towards a strong position to achieve its target returns whilst managing the risks that the Group and the wider peer-to-peer industry faces.

A review of the key metrics utilised by the Board to measure and monitor the performance of the Company are summarised below. 

Share price discount

The discount to share price has started to reduce after the period end.  As at 31 May 2016, the share price discount to cum income basis net asset value per share was 2.67p.

Capital deployment

The target deployment of funds raised from the IPO was nine months from the IPO date of 30 November 2015.  As at 31 March 2016, after four months of lending operations, approximately 62% of the net IPO proceeds have been invested in loans.  The Board expects the Company to substantially invest the net proceeds from the IPO by the end of June 2016, exceeding the target deployment rate.

 

36% Cash

18% US Loans

46% UK Loans

<1% CE Loans

Assets split by type as at 31 March 2016

Target net return

The Company aims to provide investors with an annual (unlevered) dividend of between 6 pence to 7 pence per Ordinary Share once the Company's portfolio is fully deployed.  The Company has generated positive net returns on capital invested since inception of its lending activity soon after the IPO on 30 November 2015.  The Company's performance to date and the projected earnings in the next twelve months enabled the Board to declare an initial dividend of 1 pence per Ordinary Share.

As mentioned above, the Company is expecting to have substantially deployed the funds raised from the IPO by the end of June 2016.  The Board intends to adopt a progressive dividend policy to the extent that the Company's future performance permits.

Default rate

The Board carefully monitors the level of defaults to ensure that the Company can continue to meet its target net return to investors.  The annualised default rate on the portfolio as at 31 March 2016 was 0.2% although defaults are expected to increase as the loan pool matures.

Viability Statement

In accordance with provision C.2.2 of the UK Corporate Governance Code, published by the Financial Reporting Council in September 2014, the Directors have assessed the prospects of the Company over a three year period. The Directors believe this period to be appropriate because it reflects the average term of the loans advanced by the Company to SMEs.

In their assessment of the viability of the Company, the Directors have considered each of the principal risks and uncertainties. The Board believes that the primary risks, other than tail risks beyond its control, that may impact on the Company's ability to continue as a viable business are:

§  Default risk

§  Insufficient loans originated

The Directors have also considered the Company's income, expenditure and cash flow projections and the fact that the Company's investments held directly or through its subsidiaries do not comprise readily realisable securities which can be sold to meet funding requirements if necessary. The Company maintains a risk register to identify, monitor and control risk concentration.  In addition, overall credit and economic conditions are monitored to provide insight with respect to potential warnings on adverse changes at a macroeconomic level.

Based on the Directors' evaluation of the Company's current position and the results of the stress test performed on the base assumptions used for their viability assessment, the Directors have concluded that there is a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over a three year period.

Employees, Social, Human Rights and Environmental Issues

The Company has no employees and the Board comprises five Directors, all of whom, except Samir Desai, are non-executive and independent of Funding Circle. As an investment company, the Company has no direct impact on the community and as a result does not maintain specific policies in relation to these matters. 

The Company has no greenhouse gas emissions to report from its operations, nor does it have responsibility for any other emissions-producing sources, including those within its underlying investment portfolio. However, the Company believes that high standards of corporate social responsibility ("CSR") such as the recycling of paper waste will support its strategy and make good business sense.

In carrying out its investment activities and in relationships with suppliers, the Company aims to conduct itself responsibly, ethically and fairly.

Gender Diversity

The Board of Directors of the Company comprises five male directors. 

The Remuneration and Nominations Committee and the Board are committed to diversity at the Board level and is supportive of increased gender diversity but recognises that it may not always be in the best interest of shareholders to prioritise this above other factors.   The Remuneration and Nominations Committee regularly reviews the structure, size and composition required of the Board, taking into account the challenges and opportunities facing the Company. In considering future candidates, appointments are made with regard to a number of different criteria, including diversity of gender, background and personal attributes, alongside appropriate skills, experience and expertise.

 

DIRECTORS' REPORT

The Directors present their annual report and audited consolidated financial statements for the period ended 31 March 2016. In the opinion of the Directors, the annual report and audited consolidated financial statements are fair, balanced and understandable and provide the information necessary for Shareholders to assess the Company's performance, business model and strategy.

Incorporation

The Company is a limited liability company registered in Guernsey under The Companies (Guernsey) Law, 2008 (as amended) with registered number 60680.

Activities

The Company is registered as a closed-ended collective investment scheme in Guernsey pursuant to the Protection of Investors (Bailiwick of Guernsey) Law, 1987, as amended.  The primary activity of the Company is investment in loans to generate attractive returns to investors.

Results and dividends

The total comprehensive income for the period, determined under International Financial Reporting Standards ("IFRS"), amounted to £1.28 million.

The Directors consider the declaration of a dividend on a quarterly basis. The payment of any dividend by the Company is subject to the satisfaction of a solvency test as required by The Companies (Guernsey) Law, 2008 (as amended).

On 17 June 2016, the Directors declared the payment of an interim dividend of 1 pence per Ordinary Share to those Shareholders on the register on 1 July 2016.

Business review

The Company was incorporated on 22 July 2015 and commenced trading on 30 November 2015 after successfully completing the admission of 150 million Ordinary Shares to the Premium Segment of the Official List of the UK Financial Conduct Authority and to trading on the London Stock Exchange plc's Main Market.

During the four months of trading up to 31 March 2016, the Company has deployed approximately 64% of the net initial funds raised to loans by lending directly to SMEs in the US and indirectly to SMEs in the UK and CE.  

The Strategic Report includes further information about the Company's principal activities, financial performance during the period and indications of likely future developments.

Alternative Investment Fund Managers Directive ("AIFMD")

The AIFMD requires Alternative Investment Fund Managers ("AIFM") to comply with certain disclosure, reporting and transparency obligations for Alternative Investment Funds ("AIF") that it markets in the EU.  The Company is a self-managed AlF for the purpose of the AIFMD and therefore has to comply with the disclosure requirements of the AIFMD.

The Prospectus issued by the Company in connection with Admission contained a schedule of disclosures prepared by the Directors for the purposes of AIFMD.  In addition, the AIFMD requires the Company's annual report to include details of any material changes to the information contained in that schedule.  The Directors confirm that no material changes have occurred in relation to the information contained in the schedule.

In making this confirmation, the Directors consider that any change in respect of which a reasonable investor, becoming aware of such information, would reconsider its investment in the Company, including because the information could impact on the investor's ability to exercise its rights in relation to its investment, or otherwise prejudice that investor's (or any other interests) interest in the Company should be considered material.  In setting this threshold, the Directors have had regard to the current risk profile of the Company which outlines the relevant measures to assess the Company's exposure or potential exposure to those risks, as well as with due regard to the Company's investment restrictions set out in the Company's Prospectus. As required by the Listing Rules, any material change to the investment policy of the Company will be made only with the approval of the shareholders.

The AIFMD also requires the Company to disclose the remuneration of its investment manager providing analysis between fixed and variable fees along with the information of how much of such remuneration was paid to senior management at the investment manager and how much was paid to members of staff.  As a self-managed AIF, the Company has no investment manager and thus has no information to report.

United States of America Foreign Account Tax Compliance Act ("FATCA")

Guernsey has entered into an Intergovernmental Agreement ("IGA") with the US Treasury in order to comply with FATCA and has also entered into an IGA with the UK in order to comply with the UK's requirements for enhanced reporting of tax information in accordance with FATCA principles. Under such IGAs, the Company is regarded as a Foreign Financial Institution ("FFI") resident in Guernsey. The Board continues to monitor developments in the rules and regulations arising from the implementation of FATCA in conjunction with its tax advisors.

Common Reporting Standard

On 13 February 2014, the Organisation for Economic Co-operation and Development released the Common Reporting Standard ("CRS") designed to create a global standard for the automatic exchange of financial account information, similar to the information to be reported under FATCA.  On 29 October 2014, 51 jurisdictions signed the multilateral competent authority agreement ("Multilateral Agreement") that activates this automatic exchange of FATCA-like information in line with the CRS. 

Pursuant to the Multilateral Agreement, certain disclosure requirements may be imposed in respect of certain investors in the Company who are, or are entities that are controlled by one or more, residents of any of the signatory jurisdictions.  It is expected that, where applicable, information that would need to be disclosed will include certain information about investors, their ultimate beneficial owners and/or controllers, and their investment in and returns from the Company and its subsidiaries.

Going concern

The Directors have considered the financial performance of the Group and the impact of the market conditions at the financial period-end date and subsequently. During the financial period the Group's NAV rose by £1.28 million or approximately 0.87%. The Company's current cash holdings and projected cash flows are sufficient to cover current liabilities and projected liabilities. The Directors are therefore of the opinion that the Company and Group are a going concern and the financial statements have been prepared on this basis.

Directors

The Directors who held office during the financial period end and up to the date of approval of this report were:

	Date of appointment
Frederic Hervouet	12 August 2015
Jonathan Bridel	19 August 2015
Richard Boléat	19 August 2015
Richard Burwood	12 August 2015
Samir Desai	19 August 2015

Directors' shares and interests

A list of all Directors who served during the period and their biographies are included

.

The appointment and replacement of Directors is governed by the Company's Articles of Incorporation, The Companies (Guernsey) Law 2008 (as amended) and related legislation. The Articles of Incorporation themselves may be amended by special resolution of the Shareholders.

As at 31 March 2016, the Directors held the following Ordinary Shares of the Company.

 

	Number of shares
Frederic Hervouet	5,000
Jonathan Bridel	5,000
Richard Boléat	5,000
Richard Burwood	5,000
Samir Desai	148,138
	168,138

 

During the period, no Director had a material interest in a contract to which the Company was a party (other than their own letter of appointment), except for Mr Desai who is a substantial shareholder in, director of and an employee of Funding Circle Limited which provides loan origination and servicing services to the Company.

Substantial shareholdings

During the period ended 31 March 2016, the Company had been informed of the following notifiable interests of 5% or more in the Company's voting rights in accordance with Disclosure and Transparency Rule 5.1.2:

Shareholder	Number of Ordinary Shares	Percentage holding
Invesco Ltd	44,250,000	29.65
Railway Pension Trustee Company Limited	22,500,000	15.00
Blackrock, Inc.	12,960,000	8.64

Significant agreements

The Company is not party to any significant agreements which take effect after or terminate upon a change of control of the Company, nor has the Company entered into any agreements with its Directors to provide for compensation for loss of office as a result of a takeover bid.

Acquisition of Company's own shares

The Company has not bought any of its Ordinary Shares during the period.

Information to be disclosed in accordance with UK Listing Rule 9.8.4

 

A statement of the amount of interest capitalised by the Company during the period under review with an indication of the amount and treatment of any related tax relief.	The Company has not capitalised any interest in the period under review.
Any information required in relation to the publication of unaudited financial information.	Not applicable.
Details of any long-term incentive schemes	Not applicable.
Details of any arrangements under which a director of the Company has waived or agreed to waive any emoluments from the Company.	Samir Desai has waived his remuneration - please refer to the Directors' Remuneration Report.
Details of any pre-emptive issues of equity not for cash.	Not applicable.
Details of any non-pre-emptive issues of equity for cash by any unlisted major subsidiary undertaking.	Not applicable.
Details of parent participation in a placing by a listed subsidiary	The Company holds Profit Participating Notes issued by Basinghall and Tallis. The Profit Participating Notes are listed on the Irish Stock Exchange.
Details of any contract of significance in which a director is or was materially interested.	Samir Desai is a substantial shareholder in, a director and employee of Funding Circle Limited. Richard Burwood is a Director of Basinghall and Tallis.
Details of any contract of significance between the Company (or one of its subsidiaries) and a controlling shareholder.	Not applicable.
Details of waiver of dividends by a shareholder.	Not applicable.
Board statement in respect of relationship agreement with the controlling shareholder.	Not applicable.

 

Disclosure of information to the Auditors

The Directors who held office at the date of approval of this Directors' Report confirm that, so far as they are each aware, there is no relevant audit information of which the Company's Auditors are unaware and each Director has taken all the steps that he/she ought to have taken as a Director to make himself/herself aware of any relevant audit information and to establish that the Company's Auditors are aware of that information.

Auditors

PricewaterhouseCoopers CI LLP served as auditors during the financial period and have expressed their willingness to continue in office. A resolution to re-appoint PricewaterhouseCoopers CI LLP as auditors will be put to the forthcoming Annual General Meeting.

Company Secretary          

The Company Secretary is Sanne Group (Guernsey) Limited of Third Floor, La Plaiderie Chambers, La Plaiderie, St Peter Port, Guernsey GY1 1WG, Channel Islands.

 

By order of the Board

Sanne Group (Guernsey) Limited, Company Secretary

 

 

CORPORATE GOVERNANCE REPORT

 

The Company became a member of the Association of Investment Companies ("AIC") in November 2015 and has applied the AIC Code from that date.

The Financial Reporting Council ("FRC"), the UK's independent regulator for corporate reporting and governance responsible for the Corporate Governance Code, has endorsed the AIC Code meaning that companies who report in accordance with the AIC Code fully meet their obligations under the UK Corporate Governance Code (the "Code") and the related disclosure requirements contained in the Listing Rules.

Statement of how the principles of the AIC Code are applied                   

Throughout the financial period ended 31 March 2016 the Company has been in compliance with the provisions set out in the AIC Code and the relevant provisions of the Code.  The Code includes provisions relating to: the roles of the chief executive; executive directors' remuneration; and the need for an internal audit function, each of which is not considered by the Board to be relevant to the Company.  The Company has therefore not reported further in respect of these provisions.

Board of Directors

The Board comprises five Directors, all of whom, with the exception of Samir Desai, are non-executive and independent. Sachin Patel acts as a Permanent Alternate Director for Mr Desai.  Richard Boléat is the Chairman of the Board and Jonathan Bridel is the Senior Independent Director. The Company did not use an external search consultancy nor any open advertising in the selection of the Chairman and the non-executive Directors. The Company was satisfied that the formal selection process from a pool of candidates with the relevant expertise and skills was appropriate for the needs of the Company.  Biographies of the Directors are shown and demonstrate the range and depth of skills and experience each brings to the Board.

The Directors ensure that, at all times, the Board is composed of members who, as a whole, have the required knowledge, abilities and expert experience to properly complete their tasks and are sufficiently independent. A Board member is considered independent if he has no business or personal relations which cause a conflict of interest with those of the Company. Every member of the Board ensures that he has sufficient time to perform his/her mandate. The Board considers the skills, competence and independence of candidates in the context of the overall board composition.  The Board has put in place appropriate insurance cover in respect of any legal action against the Directors.

The Company does not have a policy on length of service of Directors. In view of the long-term nature of the Company's investments, the Board believes that a stable board composition is fundamental to the proper operation of the Company. The Board has not stipulated a maximum term of any directorship.

Copies of the letters of appointment are available on request from the Company Secretary.

Independence of Directors

In accordance with the AIC Code the Board has reviewed the independence of the individual directors and the Board as a whole.  Each of the Directors except Samir Desai is considered independent.

Board evaluation

A formal Board evaluation process has not been confirmed by the Board.  However, the Directors are aware of the importance to continually monitor and improve performance. It is expected that the Board will carry out a formal evaluation process on a biannual basis.  The Directors will complete self-assessment forms which will be reviewed and discussed with the Chairman.  The Senior Independent Director will perform an annual review of the Chairman's performance.  The Directors will carry out an annual review of the Board as a whole discussing its composition, size and structure and ensuring that there is a good balance of skills and experience.  The answers to these questionnaires will be discussed by the Remuneration and Nominations Committee.

The Board shall offer induction training to new Directors about the Company, its key service providers, the Directors' duties and obligations and other matters as may be relevant from time to time.  A regular review will be undertaken by the Board to ensure that the Directors' ongoing training and development needs are met.

Election/Re-election of Directors

At each Annual General Meeting of the Company any Director who has been appointed pursuant to a nomination from Funding Circle UK, and any other Director for whom it is the second Annual General Meeting following the Annual General Meeting at which he was elected or last re-elected, shall retire from office but, subject to the Articles, shall be eligible for re-appointment.  At the first Annual General Meeting of the Company, all directors will be standing for re-election.

Committees of the Board

Audit, Risk, Management Engagement and Remuneration and Nominations Committees have been established by the Board and each Committee has formally delegated duties, responsibilities and terms of reference, which are available from the Company Secretary upon request.

An outline of the responsibilities of each of the Committees is set out below.

Audit Committee

The Board has established the Audit Committee comprising of all the Directors other than Samir Desai and is chaired by Jonathan Bridel. The Audit Committee will meet at least three times a year (usually at the same time as Board meetings) and will be responsible for ensuring, inter alia, that the financial performance of the Company is properly reported on and monitored and will provide a forum through which the Company's external auditors may report to the Board.  The Audit Committee will review and recommend to the Board the adoption and approval of the annual and half yearly financial statements, results, internal control systems and procedures and accounting policies of the Company.

Risk Committee

The Company has established a Risk Committee which is chaired by Frederic Hervouet and comprises of all of the Directors.  The Risk Committee meets at least four times a year or more often if required.  The principal duties of the Committee is to monitor the risk parameters set for the Company including breaches, errors, borrowing limits, allocation limits for UK, US, CE and other Marketplaces and Portfolio Limits. 

Management Engagement Committee

The Company has established a Management Engagement Committee which is chaired by Richard Burwood and comprises all of the Directors other than Samir Desai.  The Management Engagement Committee meets at least once a year or more often if required.  The principal duties of the Committee are to review the actions and judgments of Funding Circle UK, Funding Circle US and Funding Circle CE and also the terms of agreements appointing each of them.  The Committee is also responsible for monitoring the compliance of other service providers with the terms of their respective agreements.

Remuneration and Nominations Committee

The Company has established a Remuneration and Nominations Committee which is chaired by Richard Boléat and comprises all of the Directors.  The Remuneration and Nominations Committee meets at least once a year or more often if required.  The duties of the Committee include:

•     determining and agreeing with the Board the framework or broad policy for the remuneration of the Company's Chairman and non-executive Directors pursuant to the Company's articles of association;

•     reviewing the structure, size and composition (including the skills, knowledge and experience) required of the Board compared to its current position and make recommendations to the Board with regard to any changes necessary; and

•     giving full consideration to succession planning of Directors, taking into account the challenges and opportunities facing the Company.

Meetings and attendance

There were nine Board meetings held during the financial period ended 31 March 2016. The attendance record of each of the Directors was as follows:

	Number of attendances/number of meetings held during the period
Frederic Hervouet	7
Jonathan Bridel	8
Richard Boléat	6
Richard Burwood	9
Samir Desai	2

There were 2 Risk Committee meetings, 2 Audit Committee meetings, no Management Engagement meetings and no Remuneration and Nominations Committee held during the financial period ended 31 March 2016. The attendance record of each of the Committee members was as follows:

	Number of attendances/number of meetings held during the period
	Audit Committee	Risk Committee	Management Engagement Committee	Remuneration and Nominations Committee
Frederic Hervouet	2	2	-	-
Jonathan Bridel	2	2	-	-
Richard Boléat	2	2	-	-
Richard Burwood	2	2	-	-
Samir Desai	N/A	1	-	N/A

Board observers

Funding Circle UK has the right (pursuant to the Services Agreement) to nominate up to two observers to attend meetings of the Board. Those nominees may (other than in limited circumstances) attend each such meeting as observers, but do not have any rights to participate in the conduct of the business of the Company or to vote on any matter.

The Board may require that those nominees not attend the part of any Board meeting which considers (i) the termination of any agreement to which Funding Circle is party, or (ii) any dispute or litigation between Funding Circle and the Company.

Company Secretary

The Board appointed Sanne Group (Guernsey) Limited to act as Company Secretary on 22 July 2015.  The principal duties of the Company Secretary are to monitor compliance with the established corporate governance framework, report to the Board and to arrange and host Board and Committee meetings. 

Internal Control Review

The Board is responsible for ensuring the maintenance of a robust system of internal control and risk management and for reviewing the effectiveness of the Company's overall internal control arrangements and processes following recommendations from the Audit Committee.

The Directors may delegate certain functions to other parties such as Funding Circle UK, Funding Circle US, Funding Circle CE the Administrator and other service providers. In particular, the Directors have appointed Funding Circle UK, Funding Circle US and Funding Circle CE to originate and service the Company's investments in loans. Notwithstanding these delegations, the Directors have responsibility for exercising overall control and supervision of the services provided by Funding Circle UK, Funding Circle US and Funding Circle CE, for the risk management of the Company and otherwise for the Company's management and operations.

The Management Engagement Committee will carry out regular reviews of the performance of Funding Circle UK, Funding Circle US and other service providers appointed by the Company.

Investor Relations

All shareholders have the opportunity to attend and vote, in person or by proxy, at the AGM.  The notice of the AGM, which is sent out at least twenty days in advance, sets out the business of the meeting.

Shareholders are encouraged to attend the AGM and to participate in proceedings.  The Chairman of the Board and the Directors, together with representatives of Funding Circle, will be available to answer shareholders' questions at the AGM. 

Shareholders are also able to contact the Company and directly through a dedicated investor relations email address (ir@fcincomefund.com) or through the Company Secretary via the Company Secretary's e-mail address (FundingCircle@sannegroup.com) or by correspondence sent to the Chairman of the Board. The Chairman of the Audit Committee receives all correspondence sent to the investor relations email address and therefore can be contacted if the Chairman of the Board is unavailable.  As a consequence, the Board receives appropriate updates from the Company Secretary relative to such correspondence to keep it informed of Shareholders' sentiment or analysts' views.

 

 

AUDIT COMMITTEE REPORT

Membership

 

Jonathan Bridel - Chairman (Independent non-executive Director)

Richard Burwood (Independent non-executive Director)

Fred Hervouet (Independent non-executive Director)

Richard Boléat (Company Chairman* and Independent non-executive Director)

* The Board believes it is appropriate for the Company Chairman to be a member of the Audit Committee as he is a Fellow of the Institute of Chartered Accountants in England & Wales and is an independent Director.

Key Objectives

The provision of effective governance over the appropriateness of the Company's financial reporting including the adequacy of related disclosures, the performance of the external auditors and the management of the Company's systems of internal controls and business risks.

Responsibilities

The primary responsibilities of the Audit Committee are:

§  reviewing the Company's financial results announcements and financial statements and monitoring compliance with relevant statutory and listing requirements;

§  reporting to the Board on the appropriateness of the Company's accounting policies and practices including critical accounting policies and practices;

§  advising the Board on whether the Committee believes the annual report and financial statements, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company's performance, business model and strategy;

§  scrutiny of the loans held at amortised cost;

§  compiling a report on its activities to be included in the Company's annual report;

§  overseeing the relationship with and appointment of the external auditors;

§  agreeing with the external auditors the audit plan including discussions on the key risk areas within the financial statements;

§  considering the financial and other implications on the independence of the auditors arising from any non-audit services to be provided by the auditors; and

§  considering the appropriateness of appointing the auditors for non-audit services.

The Audit Committee members have a wide range of financial and commercial expertise necessary to fulfil the Committee's duties. The Chairman of the Committee is a Fellow of the Institute of Chartered Accountants in England and Wales, and has recent and relevant financial experience, as required by the AIC Code.  The Board has therefore designated him as its financial expert on the Committee.

Committee Meetings

The Committee meets formally at least three times a year. Only members of the Audit Committee have the right to attend Audit Committee meetings. However, other Directors and representatives of Funding Circle and the Administrator will be invited to attend Audit Committee meetings on a regular basis and other non-members may be invited to attend all or part of the meetings as and when appropriate and necessary. The Company's external auditors, PricewaterhouseCoopers CI LLP ("PwC"), are also invited to each meeting.

Main Activities during the period

The Committee assists the Board in carrying out its responsibilities in relation to financial reporting requirements, risk management and the assessment of internal controls and key procedures adopted by the Company's service providers. The Committee also manages the Company's relationship with the external auditors and considers the appointment of external auditors, discusses with the external auditors the nature and scope of the audit, keeps under review the scope, results, cost and effectiveness of the audit and reviews the independence of the external auditors. The Committee also considers the objectivity of the auditors and reviews the external auditors' letter of engagement and management letter.

Meetings of the Committee generally take place prior to a Company Board meeting. The Committee reports to the Board, as part of a separate agenda item, on the activity of the Committee and matters of particular relevance to the Board in the conduct of their work. The Board requires that the Committee advise it on whether it believes the annual report and financial statements, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the Company's performance, business model and strategy.

At its meetings during the period, the Committee focused on:

Financial reporting

The primary role of the Committee in relation to financial reporting is to review with Funding Circle, the Administrator and the External Auditors the appropriateness of the half-year and annual financial statements concentrating on, amongst other matters:

§  The quality and acceptability of accounting policies and practices;

§  The clarity of the disclosures and compliance with financial reporting standards and relevant financial and governance reporting requirements;

§  Material areas in which significant judgments have been applied or where there has been discussion with the external auditors;

§  Whether the annual report and consolidated financial statements, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the Company's performance, business model and strategy; and

§  Any correspondence from regulators and listing authorities in relation to our financial reporting.

To aid its review, the Committee considers reports from Funding Circle and the Administrator.

Significant risks

In relation to the annual report and financial statements for the period ended 31 March 2016, the following significant risks were considered by the Audit Committee:

§  Impairment and carrying values of loans advanced

The measurement of loans advanced is in accordance with the accounting policy set out in Note 2 of the financial statements.  A formal policy has been developed by the Board using data provided by Funding Circle to estimate the impairment on loans.  The Audit Committee regularly reviews this policy and the underlying loan models and has satisfied itself as to the impairment and carrying values of loans advanced in the financial statements.

§   Fraud risk in income recognition

Mitigating factors were reviewed through the risk register and internal controls framework which is reviewed and approved by the Committee on a regular basis. The Committee has considered and challenged as appropriate the assessment of risks within these documents and obtained evidence about the effective operation of the internal controls in place, including critically assessing reporting provided by Funding Circle. The Audit Committee has received a report from the Administrator that shows a comparison of the income recognised using the Funding Circle platform data to the revenue recognition requirements of IFRS.  The Audit Committee is satisfied that the accounting policy for recognition of the interest earned on loans is in line with the relevant accounting standards. 

Internal Control and Risk Management

The Committee along with the Risk Committee has established a process for identifying, evaluating and managing all major risks faced by the Company. The process is subject to regular review by the Board and accords with the AIC Code of Corporate Governance. The Board is responsible overall for the Company's system of internal control and for reviewing its effectiveness. However, such a system is designed to manage rather than eliminate risks of failure to achieve the Company's business objectives and can only provide reasonable and not absolute assurance against material misstatement or loss.

The Board receives reports from the Risk Committee on the Company's risk evaluation process and reviews changes to significant risks identified. The Board has undertaken a full review of the Company's business risks, which have been analysed and recorded in a risk report, which is reviewed and updated regularly. The Board receives each quarter from Funding Circle a formal report which details the steps taken to monitor the areas of risk including those that are not directly the responsibility of Funding Circle and which reports the details of any known internal control failures. The Board receives each year from the Administrator a report on its internal controls which includes a report from the Administrator's auditors on the control policies and procedures in operation.

Funding Circle has established an internal control framework to provide reasonable but not absolute assurance on the effectiveness of the internal controls operated on behalf of its clients. The effectiveness of the internal controls is assessed by Funding Circle's compliance and risk department on an on-going basis. Funding Circle's controls processes have also been outlined to the Board. The Board's assessment of the Company's principal risks and uncertainties is set out above. By means of the procedures set out above, the Board confirms that it has reviewed the effectiveness of the Company's system of internal controls for the period ended 31 March 2016 and that no material issues have been noted.

External Audit

The effectiveness of the external audit process is dependent on appropriate audit risk identification at the start of the audit cycle. The Committee received a detailed audit plan from PwC, identifying their assessment of these key risks. For the period ended 31 March 2016 significant risks were identified in relation to impairment and the carrying values of loans advanced and the risk of fraud in revenue recognition (in addition to the risk of management override of controls). These risks are tracked through the period and the Committee challenged the work done by the auditors to test management's assumptions and estimates around these areas. The Committee will assess the effectiveness of the audit process addressing these matters through the reporting received for the period end financial statements. In addition the Committee will seek feedback from the Administrator on the effectiveness of the audit process. For the period ended 31 March 2016, the Committee was satisfied that there had been appropriate focus and challenge on the primary areas of audit risk and assessed the quality of the audit process to be good.

Appointment and Independence

The Committee considers the reappointment of PwC, including the rotation of the Audit Engagement Partner, and assesses their independence on an annual basis. The external auditors are required to rotate the Audit Engagement Partner responsible for the Company's audit every five years. The current Audit Engagement Partner has been in place since appointment in 2015 and is considered to be independent. In its assessment of the independence of the auditors, the Committee receives details of any relationships between the Company and PwC that may have a bearing on their independence and receives confirmation that they are independent of the Company. The Committee approved the fees for audit services for 2016 after a review of the level and nature of work to be performed and after being satisfied that the fees were appropriate for the scope of the work required.

Non Audit Services

To safeguard the objectivity and independence of the external auditors from becoming compromised, the Committee has a formal policy governing the engagement of the external auditors to provide non-audit services. No material changes have been made to this policy during the period. The auditors and the Directors have agreed that all non-audit services require the pre-approval of the Audit Committee prior to commencing any work. Fees for non-audit services are tabled annually so that the Audit Committee can consider the impact on auditors' objectivity. The auditors (and their affiliated network firms) were remunerated £210,315 for their services rendered for the period ended 31 March 2016. The Committee assessed whether PwC should be appointed in relation to certain transaction related services and concluded that it would be in the best interest of the Company.

 

PwC were remunerated as follows for the period ended 31 March 2016:

	PwC CI £	PwC Ireland £
Audit of the Company	60,000	-
Audit of subsidiaries	-	28,515
Tax compliance review	6,750	15,050
Transaction related services*	100,000	-
Total	166,750	43,565

* This relates to work undertaken by PwC as reporting accountants for the admission of the Company's Ordinary Shares to the Main Market of the London Stock Exchange. 

The Committee is satisfied with the effectiveness of the audit provided by PwC, and is satisfied with the auditors' independence. The Committee has therefore recommended to the Board that PwC be reappointed as external auditors for the period ending 31 March 2017, and to authorise the Directors to determine their remuneration and terms of engagement. Accordingly a resolution proposing the reappointment of PwC as our auditors will be put to the shareholders at the 2016 AGM. There are no contractual obligations restricting the Committee's choice of external auditors and we do not indemnify our external auditors.

 

Committee Evaluation

The Committee's activities form part of the performance evaluation that will be carried out by the Board.

 

Jonathan Bridel

Chairman of the Audit Committee

23 June 2016

 

 

DIRECTORS' REMUNERATION REPORT

During the period under review, the Board established a Remuneration and Nominations Committee. Given the limited time that has elapsed since the Company was launched, the Committee has not yet met.

Composition

The Remuneration and Nominations Committee was formed on 28 September 2015, comprising all the members of the Board.  The Board have appointed Richard Boléat as Chairman of the Committee.

The Directors and Company Secretary are the only officers of the Company. Copies of the Directors' letters of appointment are available upon request from the Company Secretary at the registered office and will be available for inspection at the AGM. The Company Secretary is engaged under a Company Secretarial Agreement with the Company. The Company has no employees.

The Directors are each entitled to serve as non-executive Directors on the boards of other companies and to retain any earnings from such appointments.

Responsibilities

The primary responsibilities of the Committee are:

§  determine and agree with the Board the framework or broad policy for the remuneration of the Company's Chairman and non-executive directors pursuant to the Company's articles of association;

§  review the ongoing appropriateness and relevance of the remuneration policy;

§  ensure that contractual terms on termination, and any payments made, are fair to the individual and the Company, that failure is not rewarded and that the duty to mitigate loss is fully recognised;

§  annually review the structure, size and composition (including the skills, knowledge and experience) required of the Board compared to its current position and make recommendations to the Board with regard to any changes as necessary;

§  give full consideration to succession planning of directors, taking into account the challenges and opportunities facing the Company, and what skills and expertise are therefore needed on the Board in the future; and

§  keep under review the leadership needs of the Company with a view to ensuring the continued ability of the Company to compete effectively in the marketplace.

Remuneration Policy

In setting the Company's remuneration policy, the Remuneration and Nominations Committee has sought (so far as it considers appropriate for a company with a non-executive Board) to align the interests of the Board with those of the Company and to incentivise the Directors to help the Company to achieve its investment objective.

The Directors shall be paid such remuneration by way of fees for their services as defined in each of the Directors' letters of appointment. Under the terms of their appointments as non-executive Directors of the Company, the Directors (other than Samir Desai who has waived his entitlement to an annual fee) are entitled to the following annual fees:

	Annual fee £	Notes
Frederic Hervouet	35,000	Chairman of the Risk Committee
Jonathan Bridel	40,000	Chairman of the Audit Committee
Richard Boléat	50,000	Chairman of the Board and Chairman of the Remuneration and Nominations Committee
Richard Burwood	30,000	Chairman of the Management Engagement Committee
Samir Desai	-	Waived annual Director's fee
	155,000

The Directors shall not be entitled to any other fixed or variable remuneration (save as set out above).

No Director has a service contract with the Company, nor are any such contracts proposed. The retirement, disqualification and removal provisions relating to the Directors (in their capacity as Directors) are set out in their letters of appointment.

No annual bonus will be paid to any Director and the Company does not operate a long term incentive plan.

The Directors shall also be entitled to be repaid by the Company all properly incurred out-of-pocket expenses reasonably incurred in the execution of their duties.

In setting the level of each non-executive Director's fees, the Company has had regard to: the time commitments expected, the level of skill and experience of each Director, the current market, the fee levels of companies of similar size and complexity.

On termination of the appointment, Directors shall only be entitled to such fees as may have accrued to the date of termination, together with reimbursement in the normal way of any expenses properly incurred prior to that date. If the Board considers it appropriate to appoint a new director, the new director remuneration will comply with the current policy.

Directors' remuneration and Share interests (audited)

The total remuneration of the Directors for the period ended 31 March 2016 was as follows:

	£
Frederic Hervouet	21,635
Jonathan Bridel	24,674
Richard Boléat	32,010
Richard Burwood	22,271
Samir Desai*	-
	100,590

*Director's fee waived

Richard Burwood is also a Director of Basinghall and Tallis.  The total director's fees to Richard disclosed in the above table includes £3,182 representing Director's fees charged to Basinghall and Tallis.  There were no other items in the nature of remuneration, pension entitlements or incentive scheme arrangements which were paid or accrued to the Directors during this period. 

As at 31 March 2016 each of Richard Boléat, Jonathan Bridel, Frederic Hervouet and Richard Burwood has a share interest in the Company, in the form of 5,000 Ordinary Shares, representing 0.0033% interest in voting rights.  Samir Desai has a share interest in the Company in the form of 148,138 Ordinary Shares, representing 0.0987% in the voting rights as at 31 March 2016.  There have been no changes to the shares held by the Directors up to the date of this report.

During the period no remuneration was received by any Director in a form other than cash. Furthermore, no payments were made for loss of office, other benefits or other compensation for extra services to any Director or former Director of the Company.

The Company has no employees other than its Directors who, except for Samir Desai, are all non-executives. When considering the level of fees, the Remuneration and Nominations Committee will evaluate the contribution and responsibilities of each Director and the time spent on the Company's affairs. Following this evaluation, the Committee will determine whether the fees as set out in the Remuneration Policy continue to be appropriate. Although the Company has not to date consulted shareholders on remuneration matters, it has reviewed the remuneration of Directors of other investment companies of similar size and complexity and to the limits set out in the Company's Articles of Association. The Company welcomes any views the shareholders may have on its proposed remuneration policy.

 

Richard Boléat

Chairman of the Remuneration and Nominations Committee

23 June 2016

 

STATEMENT OF DIRECTORS' RESPONSIBILITIES

IN RESPECT OF THE FINANCIAL STATEMENTS 

 

The Directors are responsible for preparing the Directors' Report and the financial statements in accordance with applicable law and regulations.

The Companies (Guernsey) Law, 2008 (as amended) requires the Directors to prepare financial statements for each financial period and under that law they have elected to prepare the financial statements in accordance with IFRS as issued by the International Accounting Standards Board ("IASB").

The financial statements are required by law to give a true and fair view of the state of affairs of the Group and of the profit or loss of the Group for that period.

In preparing these financial statements, the Directors are required to:

•     Select suitable accounting policies and then apply them consistently;

•     Make judgements and estimates that are reasonable and prudent;

•     State whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements; and

•     Prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group will continue in business.

The Directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the Group and to enable them to ensure that the financial statements comply with The Companies (Guernsey) Law, 2008 (as amended). They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and detect fraud and other irregularities.

The Directors confirm that they have complied with the above requirements in preparing the financial statements and that to the best of their knowledge and belief:

•     This annual report includes a fair review of the development and performance of the business and the position of the Group together with a description of the principal risks and uncertainties that the Group faces;

•     The financial statements, prepared in accordance with IFRS adopted by the IASB and interpretations issued by the International Financial Reporting Interpretations Committee ("IFRIC"), give a true and fair view of the assets, liabilities, financial position and results of the Group; and

•     The annual report and financial statements, taken as a whole, provide the information necessary to assess the Group's position and performance, business model and strategy and is fair, balanced and understandable.

 

Richard Boléat                         Jonathan Bridel

Chairman                                 Chairman of the Audit Committee

23 June 2016                                       23 June 2016