UIL : Somers Limited publishes its 2022 Annual Report

2022

ANNUAL REPORT

BANKING | ASSET FINANCING | WEALTH MANAGEMENT

WHY SOMERS LIMITED?

Somers is a financial services investment company with high quality assets and minimal leverage.

Somers operates a long-term investment approach enabling it to identify attractive investments in the financial services sector which then drives positive returns.

SHAREHOLDERS' FUNDS	GROSS ASSETS	ASSETS UNDER MANAGEMENT
		INDIRECTLY MANAGING OVER

US$337.4 US$422.2 US$22.2

MILLION

MILLION

BILLION

SOMERS HAS A CONCENTRATED PORTFOLIO WITH INTERESTS PRINCIPALLY

IN AUSTRALIA, BERMUDA AND THE UNITED KINGDOM

SOMERS' OBJECTIVE IS:

To maximise shareholder return by identifying and investing in compelling long-term investments worldwide, where the underlying value is not reflected in the market price.

SOMERS OFFERS SHAREHOLDERS:

• A high conviction portfolio focused on the financial services sector.
• Extensive knowledge and expertise.
• We apply progressive themes, like technological disruption, in our investment process to identify companies that are adapting well to change, and those that may be vulnerable.
• Key areas of focus for Somers are wealth and fund management, banking, asset financing, and embracing disruptive opportunities in the financial services sector.

FINANCE SECTOR:

• Somers offers diversified exposure to the financial service sector, including traditional bank and wealth management companies alongside disruptive financial companies. The financial services sector offers interesting investment opportunities, given the increasing use of technology in a sector which is key to the financial system and global GDP.

SOMERS' INVESTMENT MANAGER:

• ICM Limited has been Somers' investment manager since inception in 2012, and prides itself in identifying compelling investment opportunities, and working proactively with investee companies to improve the economic value of identified investments.

Annual Report for the year to September 30, 2022

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CONTENTS

1. Why Somers Limited?

1. Corporate Structure
2. Chairman's Statement

1. Financial Highlights

1. Key Highlights

1. Geographical Investment Exposure

ABOUT THE COMPANY

12 Financial Review

1. Shareholders' Funds
2. Top Ten Investments
3. Summary of Core Investments

STRATEGIC REPORT AND INVESTMENTS

1. Investment Manager's Report

1. ICM's Investment Philosophy

1. Macro Trends Affecting Financial Services

1. Somers' Strategy

GOVERNANCE

1. Investment Manager and Team

1. Directors

1. Board Responsibilities and Governance

1. Risk Management

1. Overview of the Investment Valuation Process

1. Five Year Summary 2018-2022

FINANCIAL STATEMENTS

54 Independent Auditor's Report

58 Consolidated Financial Statements

63 Notes to the Consolidated Financial Statements

ADDITIONAL INFORMATION

85 Company Information

FINANCIAL CALENDAR

Year End

September 30

Annual General Meeting

February 15, 2023

Half Year

March 31

NATURE OF THE COMPANY

Somers Limited is a Bermuda exempted company incorporated with limited liability whose shares are traded on the Mezzanine Market of the Bermuda Stock Exchange ("BSX"). The business activities of Somers consist of investing the funds of its shareholders in accordance with its investment objective and policy, with the aim of generating a return for shareholders with an acceptable level of risk. Somers has a low level of debt which it uses to improve shareholder returns. Somers has contracted with an external investment manager, ICM Limited (the "Investment Manager" or "ICM") to manage its investments. Somers has a board of non- executive directors who oversee and monitor the activities of the Investment Manager and the other service providers and ensures that the investment policy is adhered to.

CORPORATE STRUCTURE

Investment holdings as at September 30, 2022

BANKING / ASSET FINANCING

PROPERTY

73.2%

53.8%

49.0%

20.1%

57.1%

PCF Group plc

Resimac Group

Thorn Group

Terra Firma

West Hamilton

Limited

Limited

Capital Corporation

Holdings Limited

Banking

Non-bank Lender

Asset Financing

Asset Management

Management

& Property

Investment

A London

Australian and

Australian financial

Focused on

Bermuda Property

Stock Exchange

New Zealand

services organisation

asset and wealth

Holding and

listed bank

mortgage

providing alternative

management

Management

Focus on retail and

securitisation

financing solutions

activities and

company

business

to consumers

interests

business banking

Loan portfolio of

and commercial

over A$16 billion

WEALTH MANAGEMENT

BROKERAGE

FINANCIAL

SPECIALIST

SERVICES

SERVICES

SERVICES

61.8%		15.8%		33.9%		20.0%		8.6%
Waverton	Aura Capital		AK Jensen		Mana Capital	MJ Hudson
Investment					Limited
Management
Limited
Wealth	Wealth & Funds		Hedge Fund		Financial Services	Fund Manager
Management	Management		Platform				Adviser
UK Private wealth	A financial services		A global brokerage		Leasing solutions for	UK services
management	business based in		business which		technology assets,	specialist to the
business	Asia Pacific providing		provides hedge fund		plant and equipment	Alternative Asset
£12.4 billion funds	wealth, funds		services to both		to NZ public sector	Management
management and		traditional hedge		organisations and	industry
under management
corporate advisory		funds and digital		large corporations
and administration
solutions to clients		asset funds

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SOMERS LIMITED

Annual Report for the year to September 30, 2022

3

CHAIRMAN'S STATEMENT

D u r i n g	t h e	y e a r
Somers	merged	with

SNB Investments Limited ("SNB"), a company owned by Somers' major shareholders. Somers remains listed on the Mezzanine Market of the Bermuda Stock Exchange, but its shareholder base has now been reduced to a small number of larger shareholders. As part of

the merger consideration the minority shareholders in Somers were issued with two year, 6% loan notes and as such have a continuing interest in the performance of Somers.

With the world emerging from Covid-19 over the last

12 months and people returning to pre-pandemic life, the global economy has experienced a period of significant inflation. This has been driven by the measures used to combat Covid-19, including billions of dollars of liquidity pumped into the global financial system and near zero interest rates. In addition, there has been significant impact to the global supply chain caused firstly by

Covid-19 and then additionally impacted by Russia's invasion of the Ukraine.

The response to the high levels of inflation around the world has been a concerted effort by global central banks to raise interest rates to a level not seen for over a decade. This has caused a re-pricing of risk assets as the cost of capital has increased. We have therefore seen increased market volatility and material falls in the value of stock markets around the world. We are now in a period of quantitative tightening rather than quantitative easing. Whilst we are probably nearing the end of the cycle of rising interest rates they are not anticipated to move back downwards for a prolonged period and as

such our investee companies are having to adjust their business and operating models for the new environment.

As a result of the negative impact on asset prices caused by the increase in interest rates, Somers' net asset value ("NAV") per share as at September 30, 2022 was $13.82 (after a special dividend of $4.55 in August 2022) and a loss for the year of $210.3 million. It is important to note that the majority of this loss is unrealised and relates to mark to market movements on our investment portfolio. In fact, post the year end we have seen a pleasing rebound in some of the values of our investments.

Overall the underlying operating performances of our investments continued to be strong in 2022. Waverton Investment Management Limited ("Waverton") is now Somers largest investment which is a reflection of its strong investment performance and increased Assets under Management and Administration ("AuMA"). We believe that Waverton's robust investment performance will continue to attract new assets and we would expect Waverton to continue to grow in 2023. Resimac's results remained solid in 2022, but the company's share price was adversely impacted by concerns that higher interest rates will impact the Australian housing market. Resimac's home loan AuM was A$15.3 billion at the year end, which reflected increased competition in the mortgage lending market. Thorn Group Limited ("Thorn") is Somers third largest investment and during the year it sold its consumer financing business, Radio Rentals, and Thorn returned A$18.0 million to Somers through dividends and share buybacks. A detailed look at Somers' portfolio is set out from page 17 of this report.

Somers was negatively impacted during the year by a strong US Dollar as the majority of Somers' assets are denominated in the Australian Dollar and Sterling. Both the Australian Dollar and Sterling weakened against the US Dollar by 10.9% and 17.3% respectively. These

negative currency movements contributed to the valuation decreases of our investments. Post the year end the US Dollar has weakened and this is reflected in stronger valuations.

During the year Somers made a number of small asset realisations and distributed certain holdings by a special dividend to shareholders in August 2022. We made a number of investments in both existing and new investee companies. We increased our holding in PCF Group plc to improve their capital position and increased our holdings in Thorn and Aura Group. We made a number of smaller investments in listed and unlisted companies in the financial services sector in Australia, the UK and Ireland. Post the year end Somers entered into a transaction with one of its shareholders, UIL Limited, whereby Somers sold its holdings in West Hamilton ("West Hamilton") and two smaller Australian Securities Exchange ("ASX") listed companies and acquired a 40% holding in ICM Mobility Ltd, a holding company for a number of transit payments sector focused companies .

The level of borrowings at Somers was broadly flat year on year despite the issue of $22.8 million of loan notes issued to shareholders as part of the merger with SNB. Long term bank debt decreased during the year in line with scheduled loan repayments and overall debt decreased as Somers repaid some of its related party loan facilities. Whilst the level of gearing has increased during the year, due to the fall in the value of Somers' investments, an external gearing level of 21.5% as at September 30, 2022 remains low and within the Company's risk parameters. Somers regularly evaluates its treasury needs including how best to rebalance its debt profile through additional but lower cost bank borrowings to be used to repay the Company's higher cost related party borrowings. Whilst Somers remains fully invested, the increase in income that Somers has received from its investee companies in 2022 should continue, and therefore the Company is well positioned to support its existing investments and

Somers paid a final dividend for the year ended September 30, 2021 of $0.38 per share. The Company then paid a special dividend of $4.55 per share to shareholders in August 2022 which was satisfied by the distribution of Resimac and The Market Herald shares. At the same time 5,412,314 warrants were issued pro- rata to all shareholders on a one for four basis. Prior to the year end, 2,760,860 warrants were exercised and Somers received 57.2 million shares in Resimac by way of consideration of the warrant exercise. As at the year end 2,651,454 warrants remain unexercised with a maturity date of September 30, 2023.

It is very clear that we are now in a new era with an increasing cost of capital and the days of 'free' money and low interest rates are behind us. With the world dealing with high inflation it is not surprising that asset prices have been under pressure as investors seek to re-price assets. Whilst we anticipate that market volatility will remain well into 2023 we believe that we are near the end of the interest rate rising cycle. Importantly we have confidence that our investee companies can continue to perform well in this market and even flourish going forward. We anticipate that there will be a number of interesting investment opportunities over the coming year across the financial services sector, and therefore we are optimistic about Somers' future.

Peter Durhager

Chairman

December 9, 2022

We anticipate there will be a number of interesting investment opportunities over the coming year across the financial services sector, and we are optimistic about Somers' future.

make new investments in the coming year.

During the year Somers continued to buyback shares given the share price was trading at a discount to the Company's NAV, with 0.02m shares bought back at an average price of $19.00 per share. The shares were cancelled prior to the merger with SNB.

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SOMERS LIMITED

Annual Report for the year to September 30, 2022

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FINANCIAL HIGHLIGHTS

TOTAL ASSETS - USD Million

800
600
400
200
0
2018	2019	2020	2021	2022

NAV per Common Share (diluted) - USD

30
25
20
15
10
5
0
2018	2019	2020	2021	2022

Year ended September 30, 2022	2022	2021
NAV per Share	$13.82	$27.70
Shares in Issuance (excluding shares held in treasury)	24.42m	22.31m
Total return per ordinary share	-33.38%	44.52%
Ordinary dividend per share	455.0c	86.0c
Total assets	$422.16m	$715.42m

NET INCOME excluding Foreign Exchange - USD Million

200
150
100
50
0
-50
-100
-150
2018	2019	2020	2021	2022

EARNINGS per Share (diluted) - USD

10
6
2
-2
-6
-10	2019	2020	2021	2022
2018

SOMERS GROUP AuM - Subsidiaries (US$m)

25,000

22,500

20,000
17,500
15,000
12,500
10,000
7,500
5,000
2,500

TOTAL EQUITY - USD Million

700
600
500
400
300
200
100
0
2018	2019	2020	2021	2022

DIVIDEND per Common Share (diluted) - USD

5
4
3
2
1
0
2018	2019	2020	2021	2022

0
		2019	2020	2021
2018
			Waverton Investment Management			Resimac Group Limited

Other

We have confidence that our investee companies can continue to perform well in this market and flourish going forward.

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SOMERS LIMITED

Annual Report for the year to September 30, 2022

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