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Half-year Report

Fri, 11th Nov 2016 16:39

RNS Number : 0227P
Funding Circle SME Income Fund Ltd
11 November 2016

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

Guernsey, 11 November 2016

Funding Circle SME Income Fund Limited

Publication of the 2016 Interim Report

Funding Circle SME Income Fund Limited (the "Company") has published its results for the semi-annual period from 1 April 2016 to 30 September 2016. The Interim Report and Accounts are attached to this release and are also available on the Company's website (www.fcincomefund.com).

CONTACTS

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

Secretary and Administrator Sanne Group (Guernsey) Limited +44 (0) 1481 739810

FundingCircle@sannegroup.com

Media Contact

David de Koning

Natasha Jones

+44 (0) 20 3667 2245

press@fundingcircle.com

Corporate Brokers Goldman Sachs International Daniel Martin

Chris Emmerson +44 (0) 20 7774 1000

daniel.martin@gs.com

Numis Securities Nathan Brown +44 (0) 20 7260 1000n.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

HALF-YEARLY FINANCIAL REPORT AND UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIOD FROM 1 April 2016 to 30 September 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.

In November 2015, the Company issued 150 million Ordinary Shares of no par value 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").

On 20 July 2016, the Company issued a further 14,285,000 Ordinary Shares at a price of £1.0153 per Ordinary Share raising net proceeds of £14,213,490 after direct issue costs of £290,071. The Ordinary 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 on 25 July 2016.

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 half-yearly financial report for the period ended 30 September 2016 (the "Half-yearly Financial 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 as at 30 September 2016

Description

Performance

Cum Income Net Asset Value per Ordinary Share

99.64p

Ex Income Net Asset Value per Ordinary Share

96.37p

Ordinary Share Price

102.50p

Premium to Net Asset Value per Ordinary Share

2.87%

Market Capitalisation

£168.4mil

· The Company has successfully deployed £151.9 million of its total capital of £161.2 million (including the issue proceeds received in July 2016)

· The Company committed £25 million to a £125 million structured finance transaction with the European Investment Bank ("EIB") in June 2016.

· 4.3% total NAV return has been achieved since the Company started operations

CHAIRMAN'S STATEMENT

Dear Shareholder,

Introduction

I am pleased to report a solid period of progress. Since I last wrote to you on 23 June 2016, the Company has achieved the following milestones:

§ Completion of an additional capital raise of approximately £15 million under the tap programme;

§ Completion of the structured finance transaction with the European Investment Bank, which was announced to the market on 17 June 2016; and

§ Payment of two quarterly dividends amounting to 1 pence and 1.625 pence per share, the latter of which was at a rate consistent with full investment and in accordance with the full investment target yield specified in the Company's IPO prospectus.

Risk

The Company's status as a "pure" SME lender avoids a number of risks to which other parties involved in the peer to peer lending environment are exposed, including in particular the risk associated with investing on a multi-platform basis where standards of risk management, origination, underwriting, allocation and servicing can be variable. Our origination and servicing counterparty, Funding Circle, has taken significant steps in 2016 to bring their risk management and credit underwriting processes to a point where the Company's risk committee has been able to conclude that the standards applied throughout are at least as good as those historically applied by market standards when considering SME loans. For investors, this is evidenced by the fact that, to date, the Company's delinquency profile falls within the range modelled at IPO.

Macroeconomic conditions in the UK and the US, being the Company's key geographical exposures, remain reasonably benign, and we see no likelihood of a material change in monetary policy or economic conditions in the short term, consistent with the views of other commentators and analysts. This stable environment is supportive of the Company's prospects. Nevertheless, the results of ongoing portfolio stress testing continue to support the expectation that the Company will be able to continue to deliver returns substantially in excess of the risk free rate in the face of a reasonably conceivable and historically experienced economic downturn.

At the time of writing, the Board does not see the impact of either the Republican victory in the US presidential election or a "hard Brexit", being the two key geopolitical risks applicable to our key markets, as being likely to have a material short term effect on our return performance or credit risk.

We fully hedge foreign currency exposures back to Sterling by virtue of a third party managed currency hedging programme and have no plans to change this very effective arrangement.

Future Prospects

As noted earlier, the Company has now substantially invested the funds raised from the equity market. As a result, we are focussed on delivering controlled and consistent risk adjusted performance and dividend flows to investors from our current loan portfolio, which stood at over 1,500 discrete borrower parties as at 30 September 2016, alongside continuing to oversee, test and challenge the processes operated by Funding Circle to manage risk. Beyond that, we are working to renew the Company's placing programme prospectus, which expires on 11 November 2016, and we expect to be open to new equity issuance with effect from the end of January 2017, in both ordinary and C share form. Further announcements will be made in that regard as appropriate.

Conclusion

I would like to express my thanks to the management of Funding Circle for the level of engagement, professionalism, transparency and support provided to the Company, which has greatly assisted the Board in carrying out its supervisory duties effectively. In addition, thanks go to our brokers and advisors, Goldman Sachs and Numis, and our administrative, legal and audit support functions, and of course to my fellow Board members.

RICHARD BOLÉAT

Chairman of the Board of Directors

11 November 2016

INTERIM REPORT

IN RESPECT OF THE FINANCIAL STATEMENTS

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.

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 detailed within 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 loans directly.

Indirect Investments

Indirect investments 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 investments 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.

The Company holds loans originated in the UK, Germany, Spain and the Netherlands indirectly through investments in special purpose vehicles.

Results and dividends

The total comprehensive income for the period, determined under International Financial Reporting Standards ("IFRS"), amounted to £5.37 million (period ended 31 March 2016: £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.

On 14 September 2016, the Directors declared a dividend of 1.625 pence per Ordinary Share payable on 31 October 2016 to shareholders on the register as at the close of business on 30 September 2016. The Board decided to offer shareholders a choice to receive dividends in cash or in shares via scrip dividend. The number of shares to be issued was determined using a Reference Share Price determined as the higher of (i) the prevailing average of the middle market quotations of the shares derived from the Daily Official List of the London Stock Exchange for the ex dividend date of 29 September 2016 and the four subsequent dealing days and (ii) the prevailing net asset value per share. The Reference Share Price for the scrip dividend was 103.45 pence per Ordinary Share. The Company issued 75,698 Ordinary Shares in relation to the scrip dividend option.

Business review

The Company 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. On 20 July 2016, the Company issued a further 14,285,000 Ordinary Shares at a price of £1.0153 per Ordinary Share raising net proceeds of £14,213,490 after direct issue costs of £290,071. As at 30 September 2016, the Company has deployed over 90% of the total funds raised by lending directly to SMEs in the US and indirectly to SMEs in the UK and Continental Europe ("CE").

In June 2016, the Company participated in a structured finance transaction with the EIB. The transaction involved the set up of an Irish company called Finch Lending Designated Activity Company ("Finch"). The Company invested £25 million into the Class B Note issued by Finch whilst the EIB has committed to invest up to £100 million in a senior loan to Finch.

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 £5.37 million as a result of operating activities. 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.

Principal risks and uncertainties

An overview of the principal risks that the Board considers to be the main uncertainties currently faced by the Group together with the mitigating actions being taken are provided in the Annual Report for the period ended 31 March 2016. The following is a summary of those risks and mitigation:

Principal risk

Mitigation and update of risk assessment

Company's financial KPI affected by risk

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.

The Board believes that result of the UK-EU referendum has increased the default risk particularly on the UK borrowers although the full effect cannot be accurately determined yet.

Capital deployed

Net return target

Share price vs NAV per share

Realised loss 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

There has not been any change to the principal risks and uncertainties and the measures in place to manage those risks as at the date of this report. The Directors have considered and reassessed the principal risks and deem them to still be relevant and applicable. The Directors expect this assessment to be the same for the remainder of the financial year.

Directors

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

Richard Boléat

Jonathan Bridel

Richard Burwood

Samir Desai

Frederic Hervouet

The biographies of the Directors are included at the end of the report.

Related party transactions

The related parties of the Group, the transactions with those parties during the period and the outstanding balances as at 30 September 2016 are disclosed in note 15 to the financial statements.

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.

STATEMENT OF DIRECTORS' RESPONSIBILITIES

IN RESPECT OF THE FINANCIAL STATEMENTS

To the best of the their knowledge, the Directors confirm that:

• the Unaudited Condensed Consolidated Financial Statements have been prepared in accordance with IAS 34, "Interim Financial Reporting"; and

• the Half-Yearly Financial Report, comprising the Summary Information, the Chairman's Statement and the Interim Report, meets the requirements of an interim management report and includes a fair review of information required by DTR 4.2.4 R;

o DTR 4.2.7R of the UK Disclosure and Transparency Rules, being an indication of important events that have occurred during the first six months and their impact on the Unaudited Condensed Consolidated Financial Statements, and a description of the principal risks and uncertainties for the remaining six months of the year; and

o DTR 4.2.8R of the UK Disclosure and Transparency Rules, being related party transactions that have taken place in the first six months and that have materially affected the financial position or performance of the Group during that period, and any material changes in the related party transactions disclosed in the last annual report.

Richard Boléat Jonathan Bridel

Chairman Chairman of the Audit Committee

11 November 2016 11 November 2016

INDEPENDENT REVIEW REPORT

TO FUNDING CIRCLE SME INCOME FUND LIMITED

Introduction

We have been engaged by Funding Circle SME Income Fund Limited ("the Company") to review the Unaudited Condensed Consolidated Financial Statements in the Half-Yearly Financial Report for the six months ended 30 September 2016, which comprises the Unaudited Condensed Consolidated Statement of Comprehensive Income, the Unaudited Condensed Consolidated Statement of Financial Position, the Unaudited Condensed Consolidated Statement of Changes in Equity, the Unaudited Condensed Consolidated Statement of Cash Flows, and related notes. We have read the other information contained in the Half-Yearly Financial Report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the Unaudited Condensed Consolidated Financial Statements

Directors' responsibilities

The Half-Yearly Financial Report is the responsibility of, and has been approved by, the Directors. The Directors are responsible for preparing the Half-Yearly Financial Report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

As disclosed in note 2, the Annual Financial Statements of the Company are prepared in accordance with International Financial Reporting Standards. The Unaudited Condensed Consolidated Financial Statements included in this Half-Yearly Financial Report has been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting".

Our responsibility

Our responsibility is to express to the Company a conclusion on the Unaudited Condensed Consolidated Financial Statements included in the Half-Yearly Financial Report based on our review. This report, including the conclusion, has been prepared for and only for the Company for the purpose of the Disclosure and Transparency Rules of the Financial Conduct Authority and for no other purpose. We do not, in producing this report, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

Scope of review

We conducted our review in accordance with International Standard on Review Engagements 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the International Auditing and Assurance Standards Board. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the Unaudited Condensed Consolidated Financial Statements included in the Half-Yearly Financial Report for the six months ended 30 September 2016 are not prepared, in all material respects, in accordance with International Accounting Standard 34 and the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

PricewaterhouseCoopers CI LLP

Chartered Accountants

Guernsey, Channel Islands

11 November 2016

Publication of Interim Financial Report

The maintenance and integrity of the Funding Circle SME Income Fund Limited website is the responsibility of the Directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the Half-Yearly Financial Report and Unaudited Condensed Consolidated Financial Statements since they were initially presented on the website.

Legislation in Guernsey governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE PERIOD ENDED 30 SEPTEMBER 2016

(Unaudited)

1 April 2016 to

30 September 2016

(Audited)

22 July 2015 to 31 March 2016

Notes

£

£

Operating income

Interest income on loans advanced

3

7,883,098

1,864,930

Unrealised foreign exchange gain

4,449,589

863,421

Bank interest income

10,758

120,701

12,343,445

2,849,052

Operating expenditure

Realised loss on currency derivatives

3,513,471

882,189

Impairment of loans

3

1,114,256

30,192

Unrealised fair value movement on currency derivatives

960,305

2,432

Loan servicing fees

15

568,212

170,381

Legal fees

251,368

99,820

Directors' remuneration and expenses

12

128,109

103,239

Company administration and secretarial fees

110,332

92,767

Audit and audit-related fees

107,648

110,315

Corporate service fees

54,583

-

Regulatory fees

44,754

13,157

Corporate broker services

33,861

12,326

Other operating expenses

84,048

55,617

6,970,947

1,572,435

Operating profit for the period before taxation

5,372,498

1,276,617

Taxation

9

-

-

Total comprehensive income for the period

5,372,498

1,276,617

Earnings per share

Basic and diluted

10

3.461p

0.851p

Number

of shares

Weighted average number of shares outstanding

Basic and diluted

10

155,230,027

150,000,000

Other comprehensive income

There were no items of other comprehensive income in the current or the prior period.

The notes form part of these financial statements.

UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AS AT 30 SEPTEMBER 2016

Notes

(Unaudited)

30 September 2016

£

(Audited)

31 March 2016

£

ASSETS

Cash and cash equivalents

5

15,626,361

56,757,244

Margin account held with bank

6

270,000

610,000

Other receivables and prepayments

21,021

225,683

Loans advanced

3

151,903,794

94,764,065

TOTAL ASSETS

167,821,176

152,356,992

EQUITY AND LIABILITIES

Capital and reserves

Share capital

8

161,213,490

147,000,000

Retained earnings

2,479,484

1,276,617

TOTAL SHAREHOLDERS' EQUITY

163,692,974

148,276,617

LIABILITIES

Fair value of currency derivatives

6

962,737

2,432

Accrued expenses and other liabilities

7

3,165,465

4,077,943

TOTAL LIABILITIES

4,128,202

4,080,375

TOTAL EQUITY AND LIABILITIES

167,821,176

152,356,992

NAV per share

Basic and diluted

105.45p

98.85p

The financial statements were approved and authorised for issue by the Board of Directors on 11 November 2016 and were signed on its behalf by:

Richard Boléat Jonathan Bridel

Chairman Chairman of the Audit Committee

The notes form part of these financial statements.

UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE PERIOD ENDED 30 SEPTEMBER 2016

Share capital

Retained earnings

Total

Notes

£

£

£

Balance at 31 March 2016

147,000,000

1,276,617

148,276,617

Issue of Ordinary Shares

8

14,503,561

-

14,503,561

Ordinary Shares issue costs

8

(290,071)

-

(290,071)

Dividends declared

-

(4,169,631)

(4,169,631)

Total comprehensive income for the period

-

5,372,498

5,372,498

Balance at 30 September 2016 (Unaudited)

161,213,490

2,479,484

163,692,974

Share capital

Retained earnings

Total

Notes

£

£

£

Balance at 22 July 2015

-

-

-

Issue of Ordinary Shares

8

150,000,000

-

150,000,000

Ordinary Shares issue costs

8

(3,000,000)

-

(3,000,000)

Total comprehensive income for the period

-

1,276,617

1,276,617

Balance at 31 March 2016 (Audited)

147,000,000

1,276,617

148,276,617

The notes form part of these financial statements.

UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE PERIOD ENDED 30 SEPTEMBER 2016

(Unaudited)

1 April 2016 to

(Audited)

22 July 2015 to

30 September 2016

31 March 2016

Notes

£

£

Operating activities

Total comprehensive income for the period

5,372,498

1,276,617

Adjustments for:

Foreign exchange gain

(4,449,589)

-

Interest income on loans advanced

(7,883,098)

(1,864,930)

Impairment of loans

3

1,114,256

30,192

Fair value movement of currency derivatives

960,305

2,432

Operating cash flows before movements in working capital

(4,885,628)

(555,689)

Loans advanced

3

(96,214,774)

(95,380,470)

Principal and interest collections on loans advanced

3

49,464,078

6,236,746

Decrease/(increase) in other receivables and prepayments

204,662

(225,683)

(Decrease)/increase in accrued expense and other liabilities

(3,582,109)

292,340

Decrease/(increase) in collateral for currency derivative

6

340,000

(610,000)

Net cash used in operating activities

(54,673,771)

(90,242,756)

Financing activities

Proceeds from issue of Ordinary Shares

8

14,213,490

147,450,000

Initial costs of issue of Ordinary Shares

8

-

(450,000)

Dividend paid

(1,500,000)

-

Net cash from financing activities

12,713,490

147,000,000

Net (decrease)/increase in cash and cash equivalents

(41,960,281)

56,757,244

Cash and cash equivalents at the beginning of the period

56,757,244

-

Exchange gain on cash and cash equivalents

829,398

-

Cash and cash equivalents at the end of the period

5

15,626,361

56,757,244

The notes form part of these financial statements.

NOTES TO THE CONDENSED FINANCIAL STATEMENTS

FOR THE PERIOD ENDED 30 SEPTEMBER 2016

1. General Information

The Company is a closed-ended limited liability company registered under The Companies (Guernsey) Law, 2008 (as amended) with registered number 60680. The Company is an registered collective investment scheme in Guernsey, pursuant to The Protection of Investors (Bailiwick of Guernsey) Law, 1987 and its Ordinary Shares are 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 Company's home member state for the purposes of the EU Transparency Directive is the United Kingdom. As such, the Company is subject to regulation and supervision by the Financial Conduct Authority, being the financial markets supervisor in the United Kingdom. The registered office of the Company is Third Floor, La Plaiderie Chambers, La Plaiderie, St Peter Port, Guernsey GY1 1WG, Channel Islands.

The Company has been established to provide shareholders with sustainable and attractive levels 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 detailed in 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.

The Company publishes monthly net asset value statements.

2. Basis of preparation

The Company has prepared these Unaudited Condensed Consolidated Financial Statements on a going concern basis in accordance with the Disclosure and Transparency Rules of the United Kingdom Financial Conduct Authority and prepared in accordance with International Financial Reporting Standard ('IFRS') IAS 34 'Interim Financial Reporting'. This Half-Yearly Financial Report does not comprise statutory financial statements within the meaning of The Companies (Guernsey) Law, 2008 (as amended) and should be read in conjunction with the audited Consolidated Financial Statements of the Group for the period ended 31 March 2016, which have been prepared in accordance with International Financial Reporting Standards. The statutory financial statements for the period ended 31 March 2016 were approved by the Board of Directors on 23 June 2016. The opinion of the auditors on those financial statements was unqualified. The accounting policies adopted in this Half-Yearly Financial Report are unchanged since 31 March 2016 except for the change in the Operating Segments accounting policy as described in note 2.1 below. This Half-Yearly Financial Report for the period ended 30 September 2016 has been reviewed by the auditors but not audited.

2.1 Segment reporting

An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur expenses. In the financial statements for the period ended 31 March 2016, the Directors reported the Group as a single operating segment engaged in the activity of making loans. During the period from 1 April 2016 to 30 September 2016, the Directors increased their use of financial information for each jurisdiction where the loans were originated from. Although this has not resulted in a change to the allocation limits as set out in the Company's Prospectus, the Directors will continue to monitor financial information for each jurisdiction and may decide to make decisions of how to allocate the resources of the Group using this financial information. Accordingly, the Directors have reconsidered the business segments of the Group based on the jurisdiction where the loans are originated from. The Directors decided to change the accounting policy to reflect three operating segments: UK, US and Continental Europe.

3. LOANS ADVANCED

(Unaudited)

30 September 2016

(Audited)

31 March 2016

£

£

Balance at the beginning of the period

94,764,065

-

Advanced

96,214,774

99,166,073

Interest income

7,883,098

1,864,930

Principal and interest collections

(49,464,078)

(6,236,746)

Loans written-off (net of recoveries)

(1,036,609)

(20,194)

Impairment allowance

(77,647)

(9,998)

Foreign exchange gains

3,620,191

-

Balance at the end of the period

151,903,794

94,764,065

The Group predominantly makes unsecured loans. However as at 30 September 2016, the carrying value of loans secured by charges over properties is £21,962,286 (31 March 2016: £12,072,105). Each loan has contractual payment dates for payment of principal and interest. The Group considers a loan as past due when the borrower's repayment has not been received for at least 30 days from the scheduled payment date. As at 30 September 2016, loan principal and interest of £292,412 (31 March 2016: £43,970) were past due.

The Group has no undrawn commitments on the loans advanced as at 30 September 2016 and 31 March 2016. The Group has committed to purchase loans of £286,526 (31 March 2016: £414,238).

The agreed analysis of the past due receivables along with the amount recognised as an impairment allowance as at the reporting date was as follows. The loans included within 'Defaulted' in the table below relate to loans written off due to the borrower defaulting on payments.

30 September 2016

(Unaudited)

Principal and interest

(Unaudited)

Impairment allowance

£

£

Past due between 30 days and 60 days

246,074

56,598

Past due between 61 days to 90 days

46,338

31,047

Past due for over 90 days

-

-

Defaulted

1,056,803

1,056,803

1,349,215

1,144,448

31 March 2016

(Audited)

Principal and interest

(Audited)

Impairment allowance

£

£

Past due between 30 days and 60 days

43,970

9,998

Past due between 61 days to 90 days

-

-

Past due for over 90 days

-

-

Defaulted

20,194

20,194

64,164

30,192

The following table shows the movement in impairment allowance during the period:

£

Impairment allowance as at beginning of the period (audited)

30,192

Additional impairment allowance (including effect of currency translation)

1,114,256

Impairment allowance at the end of the period (unaudited)

1,144,448

Finch Class B Note

In June 2016, the Company participated in a structured finance transaction with the EIB. The transaction involved the set up of an Irish company called Finch Lending Designated Activity Company ("Finch"). The Company invested £25 million into the Class B Note ("Finch Class B Note") issued by Finch whilst the EIB committed to invest up to £100 million in a senior loan to Finch. The loan has been accounted for as a held-to-maturity loan measured at amortised cost using the effective interest rate basis.

The interest income earned on the Finch Class B Note during the period was £1,621,696 which was included as a receivable as at 30 September 2016.

4. SEGMENT REPORTING

The Group operates in the UK, US, Germany, Spain and the Netherlands. For financial reporting purposes, Germany, Spain and the Netherlands combine to make up the Continental Europe operating segment.

The measurement basis used for evaluating the performance of each segment is consistent with the policies used for the Group as a whole. Assets, liabilities, profits and losses for each reportable segment are recognised and measured using the same accounting policies as the Group. The gains and losses on derivative financial instruments are allocated to specific segments that benefit from the hedge.

The Group's investment into Finch generated interest income that exceeds 10% of the Group's total income. Except for the loan to Finch, all of the Group's investments are loans to Small and Medium-sized Entities ("SMEs"). Each individual SME loan does not generate income that exceeds 10% of the Group's total income. The Company is domiciled in Guernsey and its subsidiaries are domiciled in Ireland. However, none of the Group's investments are domiciled in either Guernsey or Ireland. Consequently no investment income is derived from the countries of domicile of the Group entities.

The Finch Class B Note and the corresponding income have been reported under the 'UK' segment below. All items of income and expenses not directly attributable to specific reportable segments have been included in 'Other' segment.

Segment performance for the period ended 30 September 2016

UK

US

CE

Other

Consolidated

£

£

£

£

£

Interest income on loans advanced

5,463,550

2,326,901

92,647

-

7,883,098

Bank interest income

-

-

-

10,758

10,758

Unrealised foreign exchange gain

-

3,741,370

714,758

-

4,456,128

Total revenue

5,463,550

6,068,271

807,405

10,758

12,349,984

Unrealised foreign exchange loss

(3,327)

-

(3,212)

-

(6,539)

Unrealised fair value movement on currency derivatives

-

(817,549)

(142,756)

-

(960,305)

Realised loss on currency derivatives

-

(2,938,581)

(574,890)

-

(3,513,471)

Operating expenses

(444,872)

(175,000)

(70,941)

(692,102)

(1,382,915)

Impairment of loans

(282,388)

(820,642)

(11,226)

-

(1,114,256)

Total expenses

(730,587)

(4,751,772)

(803,025)

(692,102)

(6,977,486)

Profit/(loss) before tax

4,732,963

1,316,499

4,380

(681,344)

5,372,498

Segment assets and liabilities as at 30 September 2016

UK

US

CE

Other

Consolidated

£

£

£

£

£

Assets

111,195,118

43,054,609

5,462,128

8,109,321

167,821,176

Liabilities

(279,534)

(302,551)

(45,040)

(3,501,077)

(4,128,202)

Segment performance for the period ended 31 March 2016

UK

US

CE

Other

Consolidated

£

£

£

£

£

Interest income on loans advanced

1,159,668

705,262

-

-

1,864,930

Bank interest income

-

-

-

120,701

120,701

Unrealised foreign exchange gain

6

-

43

863,372

863,421

Total revenue

1,159,674

705,262

43

984,073

2,849,052

Unrealised fair value movement on currency derivatives

-

-

-

(2,432)

(2,432)

Realised loss on currency derivatives

-

-

-

(882,189)

(882,189)

Operating expenses

(176,004)

(53,230)

(48,123)

(380,265)

(657,622)

Impairment of loans

-

(30,192)

-

-

(30,192)

Total expenses

(176,004)

(83,422)

(48,123)

(1,264,886)

(1,572,435)

Profit before tax

983,670

621,840

(48,080)

(280,813)

1,276,617

Segment assets and liabilities as at 31 March 2016

UK

US

CE

Other

Consolidated

£

£

£

£

£

Assets

83,616,218

25,845,154

7,899,777

34,993,411

152,354,560

Liabilities

(3,862,750)

(11,452)

(27,043)

(176,698)

(4,077,943)

5. cash and cash equivalents

(Unaudited)

30 September 2016

(Audited)

31 March 2016

£

£

Cash at bank

9,023,190

22,483,253

Cash equivalents

6,603,171

34,273,991

Balance at the end of the period

15,626,361

56,757,244

Cash equivalents are term deposits held with different banks with maturities between overnight and 90 days.

6. Derivatives

Foreign exchange swaps are held to hedge the currency exposure generated by US dollar assets and Euro assets held by the Group (see Note 14). The hedges have been put in place taking into account the fact that derivative positions, such as simple foreign exchange swaps, could cause the Group to require cash to fund margin calls on those positions. Foreign exchange derivatives are entered into with Royal Bank of Scotland International ("RBSI"). During the period, the Group also entered into foreign exchange derivative contracts with Goldman Sachs International with terms similar to those entered into with RBSI. The contracts with Goldman Sachs International are collateralised by cash deposit. During the period, the Group renegotiated the terms of the contract with RBSI such that no collateral is required to cover negative fair value positions.

(a) Margin accounts held at bank

(Unaudited)

Fair value

30 September 2016

(Audited)

Fair value

31 March 2016

£

£

Margin account held with RBSI

-

610,000

Margin account held with GS

270,000

-

Fair value of currency derivatives

270,000

610,000

(b) Derivative liabilities

(Unaudited)

Fair value

30 September 2016

(Audited)

Fair value

31 March 2016

£

£

Valuation of currency derivatives

(962,737)

(2,432)

Fair value of currency derivatives

(962,737)

(2,432)

(Unaudited)

Fair value

30 September 2016

(£)

(Unaudited)

Nominal of outstanding contracts

30 September 2016

(Currency)

Euro

(142,756)

6,708,000

USD

(819,981)

60,203,315

Total

(962,737)

(Audited)

Fair value

31 March 2016

(£)

(Audited)

Nominal of outstanding contracts

31 March 2016

(Currency)

Euro

(179,235)

10,005,000

USD

176,803

43,647,000

Fair value of currency derivatives

(2,432)

7. ACCRUED EXPENSES and other LIABILITIES

(Unaudited)

30 September 2016

(Audited)

31 March 2016

£

£

Dividends declared not yet paid

2,669,631

-

Payable for loans committed but not yet funded

177,039

3,785,603

Service fees payable

104,707

65,635

Audit fees payable

118,744

110,315

Legal fees payable

56,478

95,165

Other liabilities

38,866

21,225

3,165,465

4,077,943

The amount payable for loans committed but not yet funded represents funds not released to borrowers but for which fully executed loan agreements are in place. The Group has acquired the rights to principal and interest repayments for these loans and these are therefore included in the loans advanced with a corresponding liability recognised for funds to be released to the borrowers.

8. Share capital

Authorised

Number

of shares

Ordinary Shares

164,285,000

Issued and fully paid

(Unaudited)

Amount

30 September 2016

(Unaudited)

Number of shares

30 September 2016

(Audited)

Amount

31 March 2016

(Audited)

Number of shares

31 March 2016

£

£

Ordinary Shares

164,503,561

164,285,000

150,000,000

150,000,000

Initial costs of issue

(3,290,071)

N/A

(3,000,000)

N/A

161,213,490

147,000,000

On 20 July 2016, the Company issued 14,285,000 Ordinary Shares at a price of £1.0153 per share raising net proceeds of £14,213,490 after direct issue costs of £290,071.

Rights attaching to the shares

All shareholders have the same voting rights in respect of the share capital of the Company. Every member who is present in person or by a duly authorised representative or proxy shall have one vote on a show of hands and on a poll every member present shall have one vote for each share of which he is the holder, proxy or representative. All shareholders are entitled to receive notice of the Annual General Meeting and any other General meetings.

Each Ordinary Share will rank in full for all dividends and distributions declared made or paid after their issue and otherwise pari passu in all respects with each existing Ordinary Share and will have the same rights (including voting and dividend rights and rights on a return of capital) and restrictions as each existing Ordinary Share.

9. taxation

(Unaudited)

1 April 2016

to 30 September 2016

(Audited)

22 July 2015

to 31 March 2016

£

£

Operating profit before taxation

5,372,498

1,276,617

Tax at the standard Guernsey income tax rate of 0%

-

-

Effects of tax rates in other jurisdictions

-

-

Taxation expense

-

-

The Group may be subject to taxation under the tax rules of the jurisdictions in which it invests. During the current and prior periods, Basinghall and Tallis which are consolidated into the Group's results, were subject to a corporation tax rate of 25% in Ireland. There was no net profit subject to taxation in Ireland.

10. Earnings per share ("EPS")

The calculation of the basic and diluted EPS is based on the following information:

(Unaudited)

30 September 2016

(Audited)

31 March 2016

Profit for the purposes of basic and diluted EPS

£5,372,498

£1,276,617

Weighted average number of Ordinary Shares for the purposes of basic and diluted EPS

155,230,027

150,000,000

Basic and diluted EPS

3.461p

0.851p

11. Dividends

On 17 June 2016, the Board declared a dividend on the Ordinary Shares of 1 pence per Ordinary Share at a total amount of £1,500,000. This dividend was paid on 29 July 2016.

On 14 September 2016, the Directors declared a dividend of 1.625 pence per Ordinary Share payable on 31 October 2016 to shareholders on the register as at the close of business on 30 September 2016 at a total amount of £2,669,631. The Board offered shareholders a choice to receive dividends in cash or in shares via a scrip dividend.

The number of shares issued was determined using a Reference Share Price determined as the higher of (i) the prevailing average of the middle market quotations of the shares derived from the Daily Official List of the London Stock Exchange for the ex dividend date of 29 September 2016 and the four subsequent dealing days and (ii) the prevailing net asset value per share. The Reference Share Price for the scrip dividend was 103.45 pence per Ordinary Share. The Company issued 75,698 Ordinary Shares in relation to the scrip dividend option.

12. Directors' remuneration and expenses

(Unaudited)

1 April 2016

(Audited)

22 July 2015

to 30 September 2016

to 31 March 2016

£

£

Directors' fees

122,500

100,590

Directors' expenses

5,609

2,649

128,109

103,239

None of the Directors have any personal financial interest in any of the Group's investments other than indirectly through their shareholding in the Group.

13. AUDIT AND AUDIT-RELATED SERVICES

Remuneration for all work carried out for the Group by the statutory audit firm in each of the following categories of work is disclosed below:

(Unaudited)

1 April 2016 to 30 September 2016

(Audited)

22 July 2015 to 31 March 2016

Type of service

PwC CI

PwC Ireland

PwC CI

PwC Ireland

£

£

£

£

Audit of the financial statements

50,422

14,962

60,000

28,515

Review of half-yearly financial statements

20,000

-

-

-

Tax related services

-

7,264

6,750

15,050

Other non-audit services

15,000

-

100,000

-

85,422

22,226

166,750

43,565

14. Financial risk management

The Board of Directors has overall responsibility for the establishment and oversight of the Group's risk management framework. The Group's risk management policies are established to identify and analyse the risks faced by the Group, to set appropriate risk limits and controls and to monitor risks and adherence to limits. Risk management policies are reviewed regularly to reflect changes in market conditions and the Group's activities. Below is a summary of the risks that the Group is exposed to as a result of its use of financial instruments.

i) Operational risk

The Group is dependent on Funding Circle's resources and on the ability and judgement of the employees of Funding Circle and its professional advisers to originate and service the loans purchased by the Group. Failure on Funding Circle's platform or inconsistent operational effectiveness of the internal controls at Funding Circle may result in financial losses to the Group.

The Board manages this risk by performing regular evaluation of Funding Circle's performance against the terms and conditions of the Group's agreements with Funding Circle.

ii) Market risk

Market risk is the risk of changes in market prices, such as interest rates, foreign exchange rates and equity prices, affecting the Group's income and/or the value of its holdings in financial instruments.

The Board of Directors regularly reviews the investment portfolio and industry developments to ensure that any events which impact the Group are identified and considered in a timely manner.

iii) Interest rate risk

Interest rate risk arises from the possibility that changes in interest rates will affect future cash flows or the fair value of financial instruments.

The Group is exposed to risks associated with the effect of fluctuations in the prevailing levels of market interest rates on its cash.

Loans are held by the Group at amortised cost and bear fixed interest rates. The Board has not performed an interest rate sensitivity analysis on these loans as they are intended to be held until maturity. Financial instruments with floating interest rates that reset as market rates change are exposed to cash flow interest rate risk. As at 30 September 2016, the Group had £15.63 million (31 March 2016: £56.76 million) of the total assets classified as cash and cash equivalents with floating interest rates. At 30 September 2016, had interest rates increased or decreased by 25 basis points with all other variables held constant, the change in the value of future expected cash flows of these assets would have been £39,066 (31 March 2016: £141,893). The Board of Directors believes that a change in interest rate of 25 basis points is a reasonable measure of sensitivity in interest rates based on their assessment of market interest rates at the period end.

iv) Currency risk

Currency risk is the risk that the value of the net assets will fluctuate due to changes in foreign exchange rates.

The Group invests in loans denominated in US Dollars and Euro, and may invest in loans denominated in other currencies. Accordingly, the value of such assets may be affected favourably or unfavourably by fluctuations in currency rates. The Board of Directors monitors the fluctuations in foreign currency exchange rates and uses forward foreign exchange contracts to hedge the currency exposure of the Group on US Dollar and Euro denominated investments.

The currency risk of the Group's non-GBP monetary financial assets and liabilities as of 30 September 2016 and 31 March 2016 including the effect of a change in exchange rates is shown below. The Directors believe that a change of 5% in currency exchange rates is a reasonable measure of sensitivity based on available data on currency rates at 30 September 2016 and 31 March 2016.

(Unaudited)

Carrying amount as at 30 September 2016

(Unaudited)

Effect of a 5% change in currency rate

(Audited)

Carrying amount as at 31 March 2016

(Audited)

Effect of a 5% change in currency rate

£

£

£

£

US Dollar

42,792,131

2,139,607

43,931,427

1,527,412

Euro

8,637,017

431,851

9,973,443

389,801

Total

51,429,148

2,571,458

53,904,870

1,917,213

The Group's exposure has been calculated as at the period end and may not be representative of the period as a whole.

v) Liquidity risk

Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. Many of the assets in which the Company invests are illiquid. Changes in market sentiment may make significant portions of the Company's investment portfolio rapidly more illiquid, particularly due to the types of Group's assets where there is not a broad well-established trading market.

The Board of Directors manages liquidity risk through active monitoring of amortising cash flows and reviewing the cash flow forecast on a regular basis. The Group may borrow up to 0.5 times the then-current net asset value of the Group at the time of borrowing.

Maturity profile

The following tables show the contractual maturity of the financial assets and financial liabilities of the Group:

As at 30 September 2016 (unaudited)

Within one year

One to five years

Over five years

Total

£

£

£

£

Financial assets

Cash and cash equivalents

15,626,361

-

-

15,626,361

Loans at amortised cost

16,900,565

132,661,958

2,341,271

151,903,794

Margin account held with bank

270,000

-

-

270,000

Trade and other receivables

21,021

-

-

21,021

32,817,947

132,661,958

2,341,271

167,821,176

Financial liabilities

Fair value of currency derivatives

962,737

-

-

962,737

Accrued expenses and other liabilities

3,165,465

-

-

3,165,465

4,054,303

-

-

4,128,202

As at 31 March 2016 (audited)

Within one year

One to five years

Over five years

Total

£

£

£

£

Financial assets

Cash and cash equivalents

56,757,244

-

-

56,757,244

Loans at amortised cost

30,068,969

64,695,096

-

94,764,065

Margin account held with bank

610,000

-

-

610,000

Trade and other receivables

225,683

-

-

225,683

87,661,896

64,695,096

-

152,356,992

Financial liabilities

Financial liabilities

Fair value of currency derivatives

2,432

-

-

2,432

Accrued expenses and other liabilities

4,077,943

-

-

4,077,943

4,080,375

-

-

4,080,375

vi) Credit risk and counterparty risk

Credit risk is the risk of financial loss to the Group if the counterparty to a financial instrument fails to meet its contractual obligations. The carrying amounts of financial assets best represent the maximum credit risk exposure at the reporting date. Impairment recognised on the loans at amortised cost are disclosed in note 3.

The Group's credit risks arise principally through exposures to loans acquired by the Group, which are subject to the risk of borrower default. As disclosed in note 3, the loans advanced by the Group are predominantly unsecured, but the Group holds assets as security for certain property-related loans. The ability of the Group to earn revenue is completely dependent upon payments being made by the borrower of the loan acquired by the Group.

Credit quality

The credit quality of loans is assessed through evaluation of various factors, including credit scores, payment data and other information. This information is subject to stress testing on a regular basis.

Set out below is the analysis of the Group's loan investments by grade:

(Unaudited)

Carrying value as at 30 September 2016

(Unaudited)

% of Carrying value as at 30 September

(Audited)

Carrying value as at 31 March 2016

(Audited)

% of Carrying value as at 31 March 2016

Internal grade

£

2016

£

A+

41,457,618

27.29

30,258,928

31.93

A

37,104,575

24.43

27,804,077

29.34

B

27,182,201

17.89

19,270,393

20.34

C

13,589,420

8.95

11,685,191

12.33

D

4,322,638

2.85

3,708,412

3.91

E

1,625,646

1.07

2,037,064

2.15

Not graded*

26,621,696

17.52

-

-

151,903,794

100.00

94,764,065

100.00

* - This relates to the Finch Class B Note as described in note 3. Finch is an indirect investment into Credit Assets through a structured finance transaction. The investments of Finch are loans originated in the UK which are subject to the same internal grading as per above.

The credit grade assigned to a borrower is determined by Funding Circle using an internal rating process that uses a number of factors including expected annualised loss rates.

The Board of Directors have put in place the following limits on the portfolio to manage the concentration risk exposure of the Group.

Allocation limits

The proportionate division between loans originated through the various Marketplaces (as defined in the Prospectus) must fall within the ranges set out below:

• originated through the UK Marketplace - between 50 per cent and 100 per cent. of the gross asset value of the Group

• originated through the US Marketplace - between 0 per cent and 50 per cent. of the gross asset value of the Group

• originated through the other Marketplaces - between 0 per cent and 15 per cent. of the gross asset value of the Group

Other limitations

In addition to the allocation limits described above, in no circumstances will loans be acquired by the Group, nor will indirect exposure to loans be acquired, if such acquisition or exposure would result in:

• in excess of 50 per cent of the gross asset value being represented by loans in respect of which the relevant borrower is located in the US; or

• the amount of the relevant loan or borrowing represented by any one loan exceeding, or resulting in the Group's exposure to a single borrower exceeding (at the time such investment is made) 0.75 per cent of the net asset value.

The Group 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.

As at 30 September 2016 and 31 March 2016, the Group held cash with the following financial institutions:

(Unaudited)

Amount as at 30 September 2016

(Audited)

Amount as at 31 March 2016

Short term credit rating

(S&P)

£

£

HSBC

4,126,981

5,841,564

A-1+

Santander

4,500,000

19,100,000

A-1

Barclays

5,248,271

17,393,508

A-2

Lloyds

1,751,109

14,422,172

A-1

The Group may use forward foreign currency transactions to minimise the Group's exposure to changes in foreign exchange rates. The Group is exposed to counterparty credit risk in respect of these transactions. The Board of Directors employs various techniques to limit actual counterparty credit risk, including the requirement for cash margin payments or receipts for foreign currency derivative transactions on a regular basis. As at the financial period-end, the Group's derivative counterparties were Royal Bank of Scotland International ("RBSI") and Goldman Sachs International ("GSI"). The long term-credit rating as at 30 September 2016 assigned by Moody's to RBSI was Ba1 (31 March 2016: Ba1) and to GSI was A1.

Fair value estimation

The Group classifies fair value measurements using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. The fair value hierarchy has the following levels:

· Level 1 - quoted prices (unadjusted) in active markets for identical assets or liabilities. Investments, whose values are based on quoted market prices in active markets and are therefore classified within Level 1, include active listed equities. The quoted price for these instruments is not adjusted;

· Level 2 - inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices). Financial instruments that trade in markets that are not considered to be active but are valued based on quoted market prices, dealer quotations or alternative pricing sources supported by observable inputs are classified within Level 2. As Level 2 investments include positions that are not traded in active markets and/or are subject to transfer restrictions, valuations may be adjusted to reflect illiquidity and/or non-transferability, which are generally based on available market information; and

· Level 3 - inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs).

The level in the fair value hierarchy within which the fair value measurement is categorised in its entirety is determined on the basis of the lowest level input that is significant to the fair value measurement in its entirety. For this purpose, the significance of an input is assessed against the fair value measurement in its entirety. If a fair value measurement uses observable inputs that require significant adjustment based on unobservable inputs, that measurement is a Level 3 measurement. Assessing the significance of a particular input to the fair value measurement in its entirety requires judgement, considering factors specific to the asset or liability. The determination of what constitutes "observable" requires significant judgement by the Group. The Group considers observable data to be that market data that is readily available, regularly distributed or updated, reliable and verifiable, not proprietary and provided by independent sources that are actively involved in the relevant market.

The Group's only financial instruments measured at fair value as at 30 September 2016 and 31 March 2016 are its currency derivatives. The fair values of the currency derivatives were estimated by RBSI and Goldman Sachs based on the GBP-USD forward exchange rate, the GBP-EUR forward exchange rate, the GBP-USD spot rate and the GBP-EUR spot rate as at 30 September and 31 March 2016. The Board of Directors believe that the fair value of the currency derivatives falls within level 2 in the fair value hierarchy described above.

The following table presents the fair value of the Group's assets and liabilities not measured at fair value as at 30 September 2016 and 31 March 2016 but for which fair value is disclosed:

30 September 2016 (Unaudited)

Level 1

Level 2

Level 3

Total

£

£

£

£

Loans advanced

-

-

151,903,794

151,903,794

Cash and cash equivalents

15,626,361

-

-

15,626,361

Other receivables and prepayments

-

21,021

-

21,021

Accrued expenses and other liabilities

-

(3,165,465)

-

(3,165,465)

15,626,361

(3,144,444)

151,903,794

164,385,711

31 March 2016 (Audited)

Level 1

Level 2

Level 3

Total

£

£

£

£

Loans advanced

-

-

94,764,065

94,764,065

Cash and cash equivalents

56,757,244

-

-

56,757,244

Other receivables and prepayments

-

225,683

-

225,683

Accrued expenses and other liabilities

-

(4,077,943)

-

(4,077,943)

56,757,244

(3,852,260)

94,764,065

147,669,049

The Board of Directors believe that the carrying values of the above instruments approximate their fair values. The fair value of loans advanced is estimated to be approximate to the carrying value because the Directors believe that the effect of re-pricing between origination date and the date of this report is not material. In the case of cash and cash equivalents, other receivables and prepayments, and accrued expenses and other liabilities the amount estimated to be realised in cash are equal to their value shown in the unaudited Condensed Consolidated Statement of Financial Position due to their short term nature.

There were no transfers between levels during the period and the prior period.

Capital risk management

The Board's policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of the Group. The Group's capital is represented by the Ordinary Shares and retained earnings. The capital of the Group is managed in accordance with its investment policy, in pursuit of its investment objectives.

The Group is not subject to externally imposed capital requirements. However, certain calculations on the employment of leverage are required under the Alternative Investment Manager Directive ("AIFMD"). As at 30 September 2016 and 31 March 2016, the Group had not employed any leverage.

15. Related party disclosure

The Directors, who are the key management personnel of the Group, are remunerated per annum as follow:

£

Chairman

50,000

Audit Committee Chairman

40,000

Risk Committee Chairman

35,000

Other directors

30,000

155,000

Samir Desai who is a member of the Board of Directors has waived his fees as a director of the Company. Samir Desai is a substantial shareholder in, a director and employee of Funding Circle UK. Richard Burwood is also a director of Basinghall and Tallis and is entitled to receive £5,000 per annum as director's fees from each of the companies.

The Directors held the following number of shares as at 30 September 2016 and 31 March 2016:

(Unaudited)

As at 30 September 2016

(Audited)

As at 31 March 2016

Number of shares

% of total shares in issue

Number of shares

% of total shares in issue

Richard Boléat

5,000

0.0030

5,000

0.0033

Jonathan Bridel

5,000

0.0030

5,000

0.0033

Richard Burwood

5,000

0.0030

5,000

0.0033

Samir Desai

148,138

0.0902

148,138

0.0987

Frederic Hervouet

107,000

0.0651

5,000

0.0033

270,138

168,138

The Group has no employees during the period or the prior period.

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

The transactions amounts incurred during the period and amounts payable to each of Funding Circle UK, Funding Circle US and Funding Circle CE are disclosed below.

(Unaudited)

Expense during the period ended 31 September 2016

(Unaudited)

Payable as at 30 September 2016

(Audited)

Expense during the period ended 31 March 2016

(Audited)

Payable as at 31 March 2016

Transaction

£

£

£

£

Funding Circle UK

Servicing fee

384,974

64,806

117,151

54,183

Funding Circle UK

Corporate services fee

54,583

13,578

-

-

Funding Circle UK

Reimbursement of expenses

6,768

839

-

-

Funding Circle US

Servicing fee

175,000

34,005

53,230

11,452

Funding Circle CE

Servicing fee

8,238

6,877

-

-

During the period ended 31 March 2016, Funding Circle purchased a loan from Basinghall with an outstanding principal and accrued interest of £106,358 at par value. Funding Circle also purchased a loan from Basinghall with an outstanding principal and accrued interest of £454,167 at par value. The terms of these transactions were approved by the respective Boards of the Company and Basinghall. The proceeds from the sale of loans of £106,358 was outstanding as at 31 March 2016.

There were no loans purchased by Funding Circle during the period from 1 April 2016 to 30 September 2016.

16. INVESTMENT IN SUBSIDIARIES

The Company had the following subsidiaries as at 30 September 2016 and 31 March 2016, whose results were fully consolidated during those periods:

Country of incorporation

Principal activity

Transactions

(Unaudited)

Outstanding amount at 30 September 2016

£

(Audited)

Outstanding amount at 31 March 2016

£

Basinghall Lending Designated Activity Company

Ireland

Investing in Credit Assets originated in the UK

Subscription of notes issued

80,235,760

78,800,000

Tallis Lending Designated Activity Company

Ireland

Investing in Credit Assets originated in Spain, Germany and the Netherlands

Subscription of notes issued

5,457,762

7,920,900

85,693,522

86,720,900

17. Subsequent events

On 27 October 2016, the Company issued 75,698 Ordinary Shares of no par value in relation to the scrip dividend option provided to shareholders in September. The shares were admitted to the Official List of the UK Listing Authority and to trading on the London Stock Exchange's main market.

Following the issue, the Company's issued share capital comprised 164,360,698 Ordinary Shares.

BOARD OF DIRECTORS

Richard Boléat

Chairman, Remuneration and Nominations Committee Chairman, Non-executive Director

Richard Boléat was born in Jersey in 1963. He is a Fellow of the Institute of Chartered Accountants in England & Wales, having trained with Coopers & Lybrand in Jersey and the United Kingdom. After qualifying in 1986, he subsequently worked in the Middle East, Africa and the UK for a number of commercial and financial services groups before returning to Jersey in 1991. He was formerly a Principal of Channel House Financial Services Group from 1996 until its acquisition by Capita Group plc ("Capita") in September 2005. Mr Boléat led Capita's financial services client practice in Jersey until September 2007, when he left to establish Governance Partners, L.P., an independent corporate governance practice. He currently acts as Chairman of CVC Credit Partners European Opportunities Limited, listed on the London Stock Exchange, and Yatra Capital Limited, listed on Euronext, along with a number of other substantial collective investment and investment management entities established in Jersey, the Cayman Islands and Luxembourg. He is regulated in his personal capacity by the Jersey Financial Services Commission and is a member of AIMA.

Richard Burwood

Management Engagement Committee Chairman, Non-executive Director

Mr Burwood is a resident of Guernsey with 25 years' experience in banking and investment management. During 18 years with Citibank London Mr Burwood spent 4 years as a Treasury Dealer and 11 years as a Fixed Income portfolio manager covering banks & finance investments, corporate bonds and asset backed securities.

Mr Burwood moved to Guernsey in 2010, initially working as a portfolio manager for EFG Financial Products (Guernsey) Ltd managing the treasury department's ALCO Fixed Income portfolio. From 2011 to 2013 Mr Burwood worked as the Business and Investment manager for the Guernsey branch of Man Investments (CH) AG. This role involved overseeing all aspects of the business including operations and management of proprietary investments.

Mr Burwood serves as Non-Executive Director on the boards of Roundshield Fund, Guernsey (a European asset backed special opportunities fund providing finance to small and mid-cap businesses) since January 2014 and TwentyFour Income Fund (a UK and European asset backed investments) since January 2013.

Samir Desai

Executive Director

Mr Desai is Global CEO and co-founder of Funding Circle and responsible for driving Funding Circle's strategy, overseeing its finances and managing its day to day operations. Mr Desai has worked extensively in the financial services sector. Before co-founding Funding Circle, Mr Desai was an Executive at Olivant Advisers Limited, a private equity investor in financial services businesses in Europe, the Middle East and Asia. Prior to this, Mr Desai was a management consultant at Boston Consulting Group advising a number of major UK and global banks and insurers on strategy, new product initiatives, and operational efficiency.

Jonathan (Jon) Bridel

Audit Committee Chairman, Non-executive Director

Mr Bridel is currently a non-executive Chairman or director of various listed and unlisted investment funds and private equity investment managers. Listings include The Renewables Infrastructure Group Limited (FTSE 250), Alcentra European Floating Rate Income Fund Limited, Starwood European Real Estate Finance Limited and Sequoia Economic Infrastructure Income Fund Limited which are listed on the premium segment of the London Stock Exchange. He is also Chairman of DP Aircraft 1 Limited and a director of Fair Oaks Income Fund Limited. He was until 2011 Managing Director of Royal Bank of Canada's investment businesses in Guernsey and Jersey. This role had a strong focus on corporate governance, oversight, regulatory and technical matters and risk management. He is a Chartered Accountant and has specialised in Corporate Finance and Credit. After qualifying as a Chartered Accountant in 1987, Mr Bridel worked with Price Waterhouse Corporate Finance in London and subsequently served in a number of senior management positions in Australia and Guernsey in corporate and offshore banking and specialised in credit. This included heading up an SME Lending business for a major bank in South Australia. He was also chief financial officer of two private multi-national businesses, one of which raised private equity. He holds qualifications from the Institute of Chartered Accountants in England and Wales where he is a Fellow, the Chartered Institute of Marketing and the Australian Institute of Company Directors. He graduated with an MBA from Durham University in 1988. Mr Bridel is a chartered marketer and a member of the Chartered Institute of Marketing, the Institute of Directors and is a chartered fellow of the Chartered Institute for Securities and Investment.

Frederic Hervouet

Risk Committee Chairman, Non-executive Director

Mr. Hervouet is based in Guernsey and acts in a non-executive directorship capacity for a number of hedge funds, private equity & credit funds (including structured debt, distressed debt and asset backed securities), for both listed (SFM on LSE, Euronext) and unlisted vehicles.

Mr. Hervouet was Managing Director and Head of Commodity Derivatives Asia for BNP Paribas including Trading, Structuring and Sales. Mr. Hervouet has worked under different regulated financial markets based in Singapore, Switzerland, United Kingdom and France. Most recently, Mr. Hervouet was a member of BNP Paribas Commodity Group Executive Committee and BNP Paribas Credit Executive Committees on Structured Finance projects (structured debt and trade finance). Mr. Hervouet holds a Master Degree (DESS 203) in Financial Markets, Commodity Markets and Risk Management from University Paris Dauphine and an MSc in Applied Mathematics and International Finance. He is a member of the UK Institute of Directors, a member of the Guernsey Chamber of Commerce and a member of the Guernsey Investment Fund Association. Mr. Hervouet is a resident of Guernsey.

AGENTS AND ADVISORS

Funding Circle SME Income Fund Limited

Company registration number: 60680 (Guernsey, Channel Islands)

Registered office

Third Floor, La Plaiderie Chambers La Plaiderie St Peter Port Guernsey GY1 1WG Channel Islands E-mail: ir@fcincomefund.com Website: fcincomefund.com

Portfolio Administrator

Funding Circle Ltd 71 Queen Victoria Street London EC4V 4AY

United Kingdom

Company Secretary and Administrator

Sanne Group (Guernsey) Limited Third Floor, La Plaiderie Chambers La Plaiderie St Peter Port Guernsey GY1 1WG Channel Islands

Sole Global Co-ordinator, Bookrunner and Sponsor

Goldman Sachs International Peterborough Court 133 Fleet Street London EC4A 2BB United Kingdom

Legal advisors as to Guernsey Law

Mourant Ozannes

1 Le Marchant Street

St Peter Port

Guernsey GY1 4HP

Channel Islands

Corporate broker and Co-Bookrunner

Numis Securities Limited The London Stock Exchange Building 10 Paternoster Square London EC4M 7LT United Kingdom

Legal advisors as to English Law

Simmons & Simmons LLP

CityPoint

One Ropemaker Street

London EC2Y 9SS

United Kingdom

UK Transfer Agent and Receiving Agent

Capita Registrars Limited (trading as Capita Asset Services) The Registry 34 Beckenham Road Beckenham

Kent BR3 4TU

United Kingdom

Legal advisors as to Irish Law

Matheson

70 Sir John Rogerson's Quay

Dublin 2

Ireland

Registrar

Capita Registrars (Guernsey) Limited

Mont Crevelt House

Bulwer Avenue

St Sampson

Guernsey GY2 4LH

Channel Islands

Independent Auditors

PricewaterhouseCoopers CI LLP Royal Bank Place 1 Glategny Esplanade

St Peter Port Guernsey GY1 4ND Channel Islands

GLOSSARY

Definitions and explanations of methodologies used:

"Administrator"

Sanne Group (Guernsey) Limited

"AGM"

Annual General Meeting

"AIC Code"

the AIC Code of Corporate Governance

"AIC"

the Association of Investment Companies, of which the Company is a member

AIFM"

Alternative Investment Fund Manager, appointed in accordance with the AIFMD

"AIFMD"

the Alternative Investment Fund Managers Directive

"Available Cash"

cash determined by the Board as being available for investment by the Company in accordance with the Investment Objective, and, in respect of Basinghall and Tallis cash determined by the Board of each of Basinghall and Tallis Board (having regard to the terms of the Origination Agreement and the Note) to be available for investment by Basinghall and Tallis and excluding (without limitation) amounts held as reserves or pending distribution

"Company Secretary"

Sanne Group (Guernsey) Limited

"Credit Assets"

loans or debt or credit instruments of any type originated through any of the Marketplaces

"Cum Income Net Asset Value per Ordinary Share"

Net asset value divided by the number of Ordinary Shares outstanding as at the end of the period

"Ex Income Net Asset Value per Ordinary Share"

Net asset value excluding current period profit divided by the number of Ordinary Shares outstanding as at the end of the period

"Funding Circle"

Funding Circle UK, Funding Circle US or either of their respective Affiliates (as defined in the Prospectus of the Company), or any or all of them as the context may require

"Funding Circle CE"

Funding Circle CE GmbH and Funding Circle Deutschland GmbH

"Funding Circle Netherlands"

Funding Circle Nederlands B.V.

"Funding Circle Spain"

Funding Circle Espana SLU

"Funding Circle UK"

Funding Circle Limited

"Funding Circle US"

FC Marketplace, LLC

"Marketplaces"

the marketplace platforms operated in the UK and the US, respectively, by Funding Circle, together with any similar or equivalent marketplace platform established or operated by Funding Circle in any jurisdiction

"NAV return"

Increase net asset value per share from the initial net asset value per share

"Note" or "Profit Participating Note"

notes issued by Basinghall Lending Designated Activity Company and Tallis Lending Designated Activity Company under their separate note programmes

"PwC"

PricewaterhouseCoopers CI LLP and PricewaterhouseCoopers Ireland

"PwC CI"

PricewaterhouseCoopers CI LLP

"PwC Ireland"

PricewaterhouseCoopers Ireland

This information is provided by RNS
The company news service from the London Stock Exchange
END
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