Secured Income Fund : Half Yearly Accs 31 12 22

Secured Income Fund plc

(Registered number 09682883)

Half-Yearly Report and Unaudited Condensed Financial Statements

For the six months ended 31 December 2022

Secured Income Fund plc
Contents
			Page
Strategic Report
Key Points			1
Chairman's Statement			2
Investment Report			4
Company analytics as at 31 December 2022			8
Principal Risks and Uncertainties			9
Governance
Statement of Directors' Responsibilities			10
Unaudited Condensed Financial Statements
Statement of Comprehensive Income			11
Statement of Changes in Equity			12
Statement of Financial Position			13
Statement of Cash Flows			14
Notes to the Half-Yearly Financial Statements			15
Directors and Advisers			43
Strategic Report
Key Points
31 December 2022	31 December 2021	30 June 2022
	(unaudited)	(unaudited)	(audited)
Net assets [1]	£9,686,000	£13,218,000	£10,916,000
NAV per Ordinary Share	18.39p	25.10p	20.73p
Share price	12.00p	18.50p	12.00p
Discount to NAV	(34.8)%	(26.3)%	(42.1)%
Profit/(loss) for the period	£745,000	£(1,412,000)	£(554,000)
Dividend per share declared in respect of the period	0.75p	-	0.75p
B Share issue and redemption per Ordinary Share
declared in respect of the period	3.00p	8.50p	14.50p
Total return per Ordinary Share (based on NAV) [2]	6.8%	-7.4%	-2.9%
Total return per Ordinary Share (based on share price) [2]	31.3%	-36.5%	-37.6%
Ordinary Shares in issue	52,660,350	52,660,350	52,660,350

1. In addition to the Ordinary Shares in issue, 1 Management Share of £1 is in issue (31 December 2021 and 30 June 2022: 1) (see note 18).
2. Total return per Ordinary Share has been calculated by comparing the NAV or share price, as applicable, at the start of the period with the NAV or share price, as applicable, plus dividends and B Share redemptions paid, at the period end.

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Secured Income Fund plc

Strategic Report

Chairman's Statement

Introduction

I am pleased to provide Shareholders with my Chairman's Statement, covering the interim period from 1 July 2022 to 31 December 2022. Secured Income Fund plc (the "Company") has continued to focus on returning capital to Shareholders efficiently and in a timely manner. Since the wind down proposals were adopted on 17 September 2020, the Company has maintained regular distributions to Shareholders and has returned £24.4 million (equivalent to 46.25p per Ordinary Share) through a combination of dividends and a B Share Scheme.

Performance

For the interim period ended 31 December 2022, the Company generated a net profit of £0.7 million and earnings per Ordinary Share of 1.41p (compared to a loss of £1.4 million and loss per Ordinary Share of 2.68p for the period ended 31 December 2021).

The Company's NAV at 31 December 2022 was £9.7 million (18.39p (cum income) per Ordinary Share) compared to £10.9 million (20.73p per Ordinary Share) as at 30 June 2022. The change in the NAV relates to the £1.6 million B Share distribution and £0.4 million dividend payment made during the period, with the balance being attributable to the net profit of £0.7 million.

During the reporting period, the IFRS 9 provision for the SME loan company has been increased as the Borrower has failed to secure a refinance of the facility thus far. The Borrower entered administration on 19 December 2022, however it is noted that the Company continues to receive monthly capital repayments along with interest payments. This position will be closely monitored by the Company through regular dialogue to assess the ongoing status.

Further information about the status of the remaining loans along with the respective assigned provisions is provided within the Investment Report.

During the reporting period, the Company traded at an average discount to NAV of 41.6%.

No foreign exchange hedging has been employed during the reporting period. Non-Sterling cash balances are converted into Sterling at the earliest opportunity. A table showing the FX exposure in the portfolio as at 31 December 2022 has been included in note 21.

The portfolio exposure by maturity, geography, type and currency are presented in the Company Analytics on page 8.

Corporate Activity

The Company has focused on the expeditious return of capital to investors. Costs have been monitored carefully.

As part of its ongoing management of the Company's running costs, a Special Resolution was proposed and approved at the Company's General Meeting held on 16 December 2021. Once the Company's NAV falls below £7 million, the Board will notify the London Stock Exchange of its intention to cancel the Company's admission to trading on the Specialist Fund Segment of the Main Market (the "Cancellation of Trading").

On 15 December 2022, a further Special Resolution was proposed and approved at the Company's General Meeting which involved the cancellation of the Company's capital redemption reserve (the "Reduction of Capital"). This was approved by the High Court of Justice in London and the Reduction of Capital taking effect on 28 February 2023, the amount cancelled was credited to the Company's distributable reserves on 10 March 2023. This improves the Company's distributable reserves position and will allow the Company to continue to operate the B Share scheme.

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Secured Income Fund plc

Strategic Report

Chairman's Statement (continued)

Dividends

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 under the Corporation Tax Act 2010 for so long as the Company remains listed. In line with this, on 2 September 2022, the Board declared a dividend of 0.75p per Ordinary Share for the year ended 30 June 2022, which was paid on 7 October 2022.

Capital Distributions

The Company adopted a B Share scheme, following approval by Shareholders at the General Meeting held on 23 March 2021. The Company is therefore able to issue redeemable B Shares to Shareholders which are subsequently redeemed for cash, this allows the capital returns to be made in a more tax efficient manner for some Shareholders.

During this reporting period, the Board distributed £1.6 million using the B Share Scheme, which is equivalent to 3.0p per Ordinary Share.

To date, a total of £19.5 million has been distributed to Shareholders via the B share scheme since the commencement of the managed wind down, this is equivalent to 37p per Ordinary Share. Moreover, an additional £4.9 million, equivalent to 9.25p per Ordinary Share, had been distributed in the form of dividends.

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, whilst the Company remains listed, a copy of which will be posted to Shareholders. The Board intends for a further capital return to be made within the next three months.

Shareholder Engagement

The Board has engaged with Shareholders over the reporting period, taking feedback and responding to their recommendations where appropriate. Brett Miller has led this activity and will continue to do so as we continue to wind down the Company.

Outlook

Achieving a balance between maximising the value of the remaining assets and ensuring timely returns of capital to Shareholders remains at the forefront for the Company. With the cancellation of the Company's capital redemption reserve, improving the Company's distributable reserves position, the Board remains committed to the progressive return of capital through the B Share scheme. The Company is efficiently positioned to finalise the realisation of the remaining assets, which the Board expects to be largely achieved within the next 12 to 18 months.

It is noted that the Company will shortly be approaching the £7 million NAV target which will activate the Special Resolution approved in December 2021 that triggers the cancellation of the Company's admission to trading on the Specialist Fund Segment of the Main Market.

We thank investors for their continued support throughout this period and hope to deliver investors total proceeds as close as possible for the remaining NAV. The Board will keep Shareholders updated regarding any upcoming changes over the next few months.

David Stevenson

Chairman

15 March 2023

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Secured Income Fund plc

Strategic Report

Investment Report

Overview

The Company is continuing to work closely with Borrowers, whilst optimising the return of capital to Shareholders in as expeditious a way as possible. Since the wind-down of the Company commenced in September 2020, 9.25 pence per Ordinary share has been returned to Shareholders via dividend distribution and 37 pence per Ordinary share via a B Share Scheme, which was adopted to ensure more tax efficient capital distributions for Shareholders.

Portfolio

There were ten direct loans in the portfolio as at 31 December 2022, with an average carrying value of £0.6 million per loan. A direct secured term loan to a LED manufacturer in Ireland that had been in place since May 2017 was fully repaid in December 2022.

A follow-on direct investment was made in October 2022 for a loan formerly classified as a legacy loan in previous reports. This broadband company merged with its competitor and the Company believe that this combined entity will yield superior results than the original standalone company and therefore hope to recoup some of the initial investment that was previously fully impaired in the process.

The IFRS 9 impairment provision for the SME loan company increased during the period due to further delays in obtaining refinancing. There have been marginal changes in provision across the remaining direct loans.

The legacy loans are fully impaired under IFRS 9 and therefore have zero carrying value assigned to them. This is due to various factors such as continuous delays in repayment and depleted borrower assets. The Company has continued to engage with each of these Borrowers for updates and will reassess the positions should there be any changes in circumstances.

Direct Loans

			ECL	Loan Carrying
		Principal Balance	provision at	Value at
		Outstanding as at	31	Amortised Cost	Amortisation/
		31 December	December	[1] at 31	Bullet
		2022	2022	December 2022	repayment/
Borrower	£	£	£	other	Asset Type	Currency	Yield
Borrower 1	£2,555,019	£7,665	£2,547,354	Pass-through	SME and	EUR	Variable
					amortisation	Leasing Fund
Borrower 2	£2,721,318	£1,089,233	£1,632,085	Bullet	Wholesale	GBP	10%
					repayment/other	Lending
Borrower 3	£2,482,827	£1,241,414	£1,241,413	Interest only for	Medical	USD	12%
					12 months, then	Services
					amortisation
Borrower 4	£1,630,082	£1,309,241	£320,841	Cash sweep	Film Production	USD	12%
						Financing
Borrower 5	£413,805	£115,865	£297,940	Bullet repayment	Technology	USD	5%
Borrower 6	£1,624,925	£1,482,702	£142,223	Cash sweep	Film Production	GBP	11%
						Financing
Borrower 7	£506,945	£445,703	£61,242	Cash sweep	Film Production	GBP	12%
						Financing
Borrower 8	£632,877	£594,209	£38,668	Cash sweep	Film Production	GBP	12%
						Financing
Borrower 9	£1,418,401	£1,380,057	£38,344	Cash sweep	Film Production	GBP	11%
						Financing
Borrower 10	£2,395,295	£2,363,437	£31,858	Cash sweep	Film Production	GBP	12%
						Financing
Direct Loans	£16,381,494	£10,029,526	£6,351,968
Total

1. The carrying values of loans at amortised cost disclosed in the table above do not include capitalised transaction fees, which totalled £6,133 at 31 December 2022.

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