Gcp Asset Bckd Regulatory News (GABI)

GCP ASSET BACKED INCOME FUND LIMITED

(the "Company" or "GCP Asset Backed")

LEI: 213800FBBZCQMP73A815

Annual report and financial statements for the year ended 31 December 2022

14 April 2023

The Directors of the Company are pleased to announce the Company's annual results for the year ended 31 December 2022. The full financial report and audited financial statements can be accessed via the Company's website at www.gcpassetbacked.com and will be posted to shareholders who elected to receive full copy statutory documents over the course of the next few weeks.

For further information please contact:

Gravis Capital Management Limited 

+44 (0)20 3405 8500

Joanne Fisk

Philip Kent

Investec Bank plc

+44 (0)20 7597 4000

Helen Goldsmith

Denis Flanagan

Neil Brierley

Buchanan/Quill

+44 (0)20 7466 5000

Helen Tarbet

Sarah Gibbons-Cook

Henry Wilson

ABOUT THE COMPANY

GCP Asset Backed Income Fund Limited (the "Company") is a listed investment company which focuses predominantly on investments in UK asset backed loans.

The Company seeks to provide shareholders with attractive risk-adjusted returns through regular, growing distributions and modest capital appreciation over the long term.

The Group is currently invested in a diversified portfolio of asset backed loans across the social infrastructure, property, energy and infrastructure, and asset finance sectors, located predominantly in the UK.

The Company is a closed-ended investment company incorporated in Jersey. It has a premium listing on the Official List of the FCA with its shares admitted to trading on the Premium Segment of the Main Market of the LSE since 23 October 2015.

At 31 December 2022, its market capitalisation was £364.7 million. The Company is a constituent of the FTSE All-Share Index.

AT A GLANCE - 31 DECEMBER 2022

HIGHLIGHTS FOR THE YEAR

- Dividends of 6.3253 pence per share declared in respect of the year, in line with the dividend target for the year and continuing its stated aim of growing the dividend year-on-year.

- Total shareholder return4 of -7.3%, total NAV return4 of 1.9% (31 December 2021: 13.2% and 3.4%) and an annualised total shareholder return4 since IPO of 3.5%.

- Profit for the year of £7.7 million (31 December 2021: £15.0 million). The decrease year-on- year reflects net unrealised valuation losses on the portfolio and a reduction in fee income. Further information on financial performance is included below.

- NAV per ordinary share of 94.90 pence at 31 December 2022, a decrease from 99.29 pence in the prior year, primarily due to the write-down taken against the Co-living group loan of 3.3 pence per share and discount rate adjustments made by the Valuation Agent in respect of UK property exposure. Further information is included in the Investment Manager's report below.

- Exposure to a diversified, partially inflation and/or interest rate-protected portfolio of 59 asset backed loans with a third party valuation of £431.05 million at 31 December 2022.

- Loans of £102.0 million (new and follow-on) advanced by the Group during the year, secured against 32 projects with a further £13.9 million secured against four projects, advanced post year end.

- Repayments of £95.6 million during the year generating repayment fees of £0.8 million, with a further £12.5 million of repayments received post year end.

1. Includes the valuation of the Subsidiary, refer to note 11 to the financial statements for further information.

2. Special dividend of 0.25 pence per share declared in respect of the year ended 31 December 2020.

3. Total dividend of 6.325 pence includes a quarterly dividend of 1.58125 pence per share for the quarter to 31 December 2022, which was declared post year end.

4. Alternative performance measure - refer below for definitions and calculation methodology.

5. Valuation of the portfolio held by the Subsidiary. The Company makes its investments through its wholly owned Subsidiary. Refer to note 1 to the financial statements for further information.

INVESTMENT OBJECTIVES AND KPIS

The Company's purpose as a closed‑ended investment company is to meet its investment objective, which is to generate attractive risk‑adjusted returns through regular, growing distributions and modest capital appreciation over the long term.

Key performance indicators

Sustainability indicators

Further information on Company performance can be found below.

1. Alternative performance measure - refer below for definitions and calculation methodology.

2. Including the Company's Co-living group loan which is held at net realisable value. Excluding this loan, the weighted average annualised yield1 is 8.3%.

3. Percentage of portfolio with an EPC rating of B or above, 14% rated C, 5% rated D, E, and F, with the remainder either not applicable or not found.

4. The dividend is fully covered by adjusted earnings1 of 6.58 pence per share.

5. Measured in alignment with the UN SDGs: housing for vulnerable adults, care for the elderly, nurseries, urban regeneration and affordable housing.

PORTFOLIO AT A GLANCE

Portfolio of 59 asset backed loans with an average life of six years which are partially inflation and/or interest rate protected. The loans fall within the following sectors and are secured predominantly against physical assets and contracted cash flows in the UK.

1. The Company has exposure to overseas assets located in Europe, the US, Australia and Hong Kong.

CHAIRMAN'S STATEMENT

I am pleased to present the annual report of the Company for the year ended 31 December 2022.

Introduction

The Company continues to offer investors exposure to an attractive and diversified portfolio of secured loans. The relatively short-dated duration of the portfolio continues to allow the portfolio to refresh its characteristics and take advantage of changing levels of risk and return opportunities as a result of the macro-economic environment.

This year has seen continued challenges for the Company, with the headwinds in the UK economy, and the availability of a broader range of income producing investments arising from increased interest rates. These factors have contributed to the Company's shares trading at a persistent discount1 to NAV. Notwithstanding these challenges, the shifts in the market have presented exciting new opportunities and we believe that the Company is well placed to adapt to the new macro-economic environment while continuing to provide risk-adjusted returns to investors, through its diversified portfolio of loans.

Across the loan portfolio, four loans have experienced challenges in the year. These are the Co-living group loan, where the impact of the ongoing resolution has resulted in further write-downs, two loans to multi-use community facilities and a loan for which a small number of the underlying supported living assets have been impacted by issues at the registered provider. In total, impacted assets across these four loans represent 4%2 of the total portfolio by value at year end. Further information on these assets is included below.

Importantly, elsewhere in the portfolio, borrowers have continued to perform well with a number expanding their operations into new sites and geographies over the year. Within the student accommodation sector, we have seen occupancy on assets in the UK and Ireland achieve an average of 98.5% albeit with slower recovery being seen on assets in Australia.

Equally, whilst operational assets are seeing cost inflation, we have seen good demand on care home assets achieving an average occupancy of 90% and stabilised nurseries (operating for more than 18 months) at 93%.

Consistent with challenges seen across the market and reflecting the higher interest rate environment, the Company's shares have traded at a persistent discount1 to NAV through the year. The Board has therefore undertaken a buyback programme to demonstrate support for the NAV, to benefit from the consequent accretion to NAV and to provide confidence to the market. The Board stepped in to initiate a similar programme of support in 2020 in response to the Covid-19 pandemic and remains supportive of taking strategic action where this represents value to the Company and to its shareholders.

Throughout the year, both the Board and Investment Manager have sought to engage with shareholders through regular communication, including webinars, meetings and factsheets. The aim is to ensure that shareholders receive timely and comprehensive information on the portfolio and any other significant matters as appropriate. The Board and the Investment Manager also engaged with shareholders in the latter part of 2022 to discuss the resignation of David Conlon, the lead fund manager. The Board and Investment Manager remain keen to engage with shareholders to answer any questions.

Looking to the future, the Investment Manager has an attractive pipeline of new investments in well-understood sectors and is working with existing borrowers to understand their future funding requirements. Both new and follow-on investments are being made at higher rates of return to reflect the shift in rates seen across the lending market in 2022. Repayments in the year on existing loans were at an average interest rate of 7.7% against new investments made during the year at an average interest rate of 8.6%.

1. Alternative performance measure - refer to below for definitions and calculation methodology.

2. Calculation comprises 50% of the supported living loan to reflect only the impacted assets. Including the full loan this percentage would increase to 5.6%.

Financial performance

In the period, the Company's portfolio generated total income of £14.4 million with profit for the period of £7.7 million, decreasing from £15.0 million in the prior year reflecting net unrealised valuation losses on the portfolio as detailed below, and a reduction in fee income. Further information is included in the financial review below.

Net assets

At the year end, the net assets of the Company were £412.0 million. The NAV per share decreased from 99.29 pence at 31 December 2021 to 94.90 pence at the year end. The valuation of investments decreased during the year to £435.1 million from £447.0 million at 31 December 2021, with the largest single asset exposure comprising 3.7% of total portfolio by value.

The decrease in NAV per share is primarily as a result of the write-down taken against the Co-living group loan, which represents 3.3 pence per share, and discount rate adjustments made by the Valuation Agent in respect of UK property exposure. These are reflected through net unrealised valuation movements in accordance with IFRS. Further information is included in the Investment Manager's report below.

Financing

The Company has been utilising the RCF to efficiently deploy available capital and take advantage of increases in prevailing market rates. Utilisation over the last year has averaged 11% and at the year end, £32.1 million of the RCF was utilised, representing 7.2% of total assets.

The performance of the RCF has been positive: the Company has demonstrated coverage on all financial covenants and compliance with other covenants. The RCF commitment (which has not to date been fully drawn) does not constitute an aggressive level of gearing and that the Company has met, and continues to be able to meet, all financial commitments and covenants of the RCF.

The £50.0 million RCF with RBSI includes an optional extension (with lender approval) in August 2023, which will allow for an additional term of one year. The Company, through the Investment Manager, has commenced a review of its financing arrangements with the intention of extending the RCF in advance of the date of expiry, as well as exploring alternatives should the RCF not be renewed. As such, the Board is satisfied that the Company can continue to meet its liabilities as they fall due over the next twelve months.

Further information on the RCF is given in notes 2.1 and 14 to the financial statements.

Investments

During the year, the Group advanced £102.0 million in the form of 32 investments: 8 new and 24 follow-on transactions. Investments made during the year have been consistent with the Company's investment objective and policy. Further information is provided below.

Co-living group loan

The Co-living group loan breached a liquidity covenant in May 2021 and has been in a work-out process over the last two years. The loan is a syndicated loan and the Group is part of a consortium of lenders.

Since the loan defaulted, the consortium of lenders has been looking to achieve the sale of the assets of the Co-living group to recover as much value as possible. Significant progress has been made in this regard, with the flagship Canary Wharf asset sold in late 2022. Further details on the work-out process and plans for the remaining assets are set out below.

As noted later in the Investment Manager's report, the key features of this loan are not present in any other loan in the portfolio. Further detail is included below.

Key highlights

Share price performance

The Company's shares have persistently traded at a discount1 to NAV throughout the year, with an average discount1 of 6.0%. At 31 December 2022, the share price was 84.00 pence, representing a discount1 to NAV of 11.5%. Since IPO, the shares have traded at an average discount1 of 1.2%.

The total shareholder return1 for the year was -7.3% (31 December 2021: 13.2%) which was driven by a reduction in the Company's share price. Total NAV return1 for the year was 1.9% (31 December 2021: 3.4%).

As discussed above, in recognition of the continued discount, the Board has sought to undertake a buyback programme. During the year, the Company repurchased a total of 5,682,459 shares at a weighted average price of 81.39 pence per share, a discount1 to the prevailing NAV. This activity was NAV accretive and contributed 0.2 pence per share since the programme was recommenced in October 2022. Where the Board considers there to be a continued benefit for the Company and for shareholders, it will look to the continuation of the buyback programme. Post year end, a further 6,325,000 shares have been repurchased, contributing 0.2 pence per share to the NAV.

Dividend policy

The Company paid 6.325 pence per share in interim dividends, compared to 6.30 pence per share paid in interim dividends for 2021, meeting the target set for 2022 and fulfilling the Company's stated aim to grow its annual dividend year-on-year. The dividend was 0.28 times covered by EPS of 1.75 pence and 1.04 times covered by an adjusted EPS¹ of 6.58 pence.

Key risks

The year has seen shifts in the economic, political and regulatory risks relevant to the Company and to all UK-focused businesses. However, some clarity has been reached on the impact of Brexit and the Covid-19 pandemic on the Company with reduced uncertainty on how borrowers are able to operate.

Rising interest rates in the year and post year end present both risks and opportunities for the Company. The economic environment has seen some lenders reduce their lending activity, presenting opportunities for investment and allowing for higher yielding loans, particularly on loans with rate linkage. However, the interest rate environment also presents challenges to the Company, as evidenced in part by the Company's share continuing to trade at a discount1 to NAV.

In the year, the war in Ukraine has had a profound impact on geopolitical relations. Whilst there are no loans in the portfolio that have been advanced to companies based in Ukraine, Russia or Belarus and no borrowers have been subject to sanctions, the conflict has seen impacts across a variety of businesses, particularly on supply chains in construction and energy prices. Construction projects across the portfolio have the benefit of fixed price construction contracts with experienced counterparties. To date, whilst there has been cost inflation across the portfolio, none of the Group's loans to construction projects have had cost overruns in excess of budgeted contingencies.

The loan portfolio has a significant exposure to residential property, particularly in the UK. Whilst house prices in the UK rose in the year, given the current inflationary environment, commentators are anticipating a reduction in residential property value in the UK over the coming year. The property portfolio retains headroom for reductions with an average LTV¹ of c.70%. Equally, the Investment Manager works closely with borrowers to understand exit strategies for all residential property investments. In a downturn, this could include sale of assets, refinancing with another lender or holding assets for rental income.

The Company's portfolio includes 20% of overseas investment. Of this exposure, 10% is hedged and 90% is held in Sterling loans. In the year, currency markets experienced increased volatility but there was limited impact on the portfolio due to the hedging strategy adopted.

The Board and Investment Manager carry out stress and viability testing on the Company to assess the impact of these risks. Further detail on stress and viability testing and the risks and uncertainties facing the Company is set out below.

1. Alternative performance measure - refer below for definitions and calculation methodology.

Governance and compliance

The Board recognises the importance of a strong corporate governance culture and continues to maintain principles of good corporate governance as set out in the AIC Code. Refer below for further details.

Responsible investment

The Board has continued to work closely with the Investment Manager to make progress against the Company's stated aims in respect of ESG and to identify ways in which the Company can embed the principles of responsible investment within its operations. Although the Company, as an investment company, is currently excluded from the requirement to report against the recommendations of the TCFD, this year, as progress towards future compliance, the Company has provided description on the four TCFD pillars of governance, strategy, risk management and metrics and targets; refer to the sustainability section below. Of particular note has been the data collection project undertaken by the Investment Manager, to develop, quantify and report material ESG metrics from the underlying portfolio. Further details of the work the Board and Investment Manager have undertaken on ESG are detailed below.

Investment Manager

In October 2022, David Conlon resigned from the Investment Manager. Mr Conlon had acted as lead fund manager since IPO and we would like to thank him for his contribution to the Company over this period. Since his departure, Joanne Fisk, Philip Kent and Rollo Wright have taken over responsibility for the management of the Company and an update on the Investment Manager's plan for resourcing is included below.

Outlook

The Company continues to operate in a challenging macro-economic environment and this is impacting the performance of a small proportion of the portfolio, particularly the Co-living group loan which has seen further reductions in fair value throughout the year.

Aside from the four loans that have experienced challenges during the year, performance across the remaining 55 assets has been stable with £127.5 million in principal and interest repaid. Post year end, one of the football finance positions representing 0.5% of the loan portfolio missed a payment comprising interest and principal amounts due to a change in legislation in the asset jurisdiction. Further information is included below.

Whilst there are challenges, the current environment also presents opportunities for the Company to make new investments and reset the portfolio yield. Over the year, yields on new investments averaged 8.6% respectively, contributing to an increase in the weighted average annualised yield1 from 7.3% at 31 December 2021 to 8.0% at 31 December 2022. This trend is set to continue for the forthcoming year.

We believe that the Company is well placed to adapt to the new environment and meet its three stated investment objectives. We would like to thank our shareholders for their continued support and engagement over the year.

Alex Ohlsson

Chairman

13 April 2023

1. Alternative performance measure - refer below for definitions and calculation methodology.

2. Including the Company's Co-living group loan which is held at net realisable value. Excluding this loan, the weighted average annualised yield1 is 8.3%.

STRATEGIC OVERVIEW

The Company's investment objective is to generate attractive risk-adjusted returns through regular, growing distributions and modest capital appreciation over the long term.

Investment objective

The Company's investment objective is to generate attractive risk-adjusted returns through regular, growing distributions and modest capital appreciation over the long term.

Investment policy

The Company seeks to meet its investment objective through a diversified portfolio of investments which are secured against, or comprise, contracted, predictable medium to long-term cash flows and/or physical assets. The Company's investments will predominantly be in the form of medium to long-term fixed or floating rate loans which are secured against cash flows and/or physical assets which are predominantly UK based.

The Company's investments will typically be unquoted and will include, but not be limited to, senior loans, subordinated loans, mezzanine loans, bridge loans and other debt instruments. The Company may also make limited investments in equities, equity-related derivative instruments such as warrants, controlling equity positions (directly or indirectly) and/or directly in physical assets.

The Company will at all times invest and manage its assets in a manner which is consistent with the objective of spreading investment risk.

Investment restrictions

The Company observes the following investment restrictions:

- any single investment, or any investments with a single counterparty, will be limited to 20% of the gross assets of the Company;

- investments in equities and equity-related derivative instruments, including controlling equity positions and any direct investments in physical assets, will be limited to 10% of the gross assets of the Company;

- no more than 30% of the gross assets of the Company will be used to finance investments outside the UK; and

- the Company will not invest in other listed closed-ended funds.

The limits set out above shall all apply at the time of investment, as appropriate.

Structure of investments

The Company typically makes investments directly or indirectly through one or more underlying special purpose vehicles which will usually be wholly owned by the Company and over which the Company will exercise control as regards investment decisions. The Company may from time to time invest through vehicles which are not wholly owned by it. In such circumstances, the Company will seek to secure controlling rights over such vehicles through shareholder agreements or other legal arrangements.

In the event of a breach of the investment restrictions set out above, the Investment Manager shall inform the Directors upon becoming aware of the same and if the Directors consider the breach to be material, notification will be made to a regulatory information service.

No material change will be made to the investment policy without the approval of shareholders by ordinary resolution.

Non-financial objectives of the Company

The key non-financial objectives of the Company are:

- to maintain strong, long-term and positive working relationships with all stakeholders, including shareholders and borrowers;

- to promote the development of emerging asset backed sectors by developing financial products that match the requirements of these sectors; and

- to operate a long-term, viable business model, which does not detrimentally impact the environment and provides tangible benefits to society.

Key policies

Borrowing and gearing policy

The Company may, from time to time, use borrowings for investment purposes, to manage its working capital requirements or in order to fund the market purchase of its own shares. Gearing, represented by borrowings, will not exceed 25% of NAV, calculated at the time of borrowing.

Hedging and derivatives

The Company may invest through derivatives for investment purposes and efficient portfolio management. In particular, the Company may engage in interest rate hedging or otherwise seek to mitigate the risk of interest rate changes as part of the Company's efficient portfolio management.

Investments will be denominated primarily in Sterling. However, the Company may make limited investments denominated in currencies other than Sterling, including US Dollars, Euros and Australian Dollars. In the event of the Company making such investments, the Investment Manager will use its judgement, in light of the Company's investment policy, in deciding whether or not to effect any currency hedging in relation to any such investments. In addition, the Company may do so where the Investment Manager considers such hedging to be in the interests of efficient portfolio management and may utilise derivative instruments to seek to achieve this. The Company will not engage in currency trading for speculative purposes.

Any use of derivatives for investment purposes will be made on the basis of the same principles of risk spreading and diversification that apply to the remainder of the Company's investment portfolio and will be subject to the investment restrictions described above.

Dividend policy

The Company pays dividends on a quarterly basis, with dividends typically declared in January, April, July and October and paid in or around February, May, August and November in each financial year.

The Company has authority to offer a scrip dividend alternative to shareholders. The offer of a scrip dividend alternative was suspended at the Board's discretion, for all 2022 dividends, as a result of the discount between the likely scrip dividend reference price and the relevant quarterly NAV per share of the Company. The Board intends to keep the payment of future scrip dividends under review.

Conflicts of interest

Where there is any overlap for a potential investment with GCP Infra, GCP Infra has a right of first refusal over such investment. GCP Infra has not exercised this right of first refusal since the Company's IPO.

In the event that the Investment Manager or any shareholders, directors, officers or employees of the Investment Manager are directly or indirectly interested in any entity or asset in relation to any investment proposal, the potential investment is presented to the Board for its approval. Further details can be found below.

BUSINESS MODEL

The Group's purpose is to invest in a diversified portfolio of asset backed loans to provide regular, growing distributions and modest capital appreciation over the long term.

1. Alternative performance measure - refer below for definitions and calculation methodology.

2. Percentage of portfolio with an EPC rating of B or above, 14% rated C, 5% rated D, E, and F, with the remainder either not applicable or not found.

3. The dividend of 6.325 pence per share is fully covered by an adjusted EPS1 of 6.58 pence per share.

INVESTMENT MANAGER'S REPORT

The Company's target market remains underserviced by mainstream lenders and therefore presents an opportunity for generating attractive risk‑adjusted returns.

Asset backed lending

Asset backed lending is an approach to structuring investments used to fund infrastructure, industrial or commercial projects and asset financing. Asset backed lending relies on the following to create security against which investment can be provided:

- the intrinsic value of physical assets; and/or

- the value of long-term, contracted cash flows generated from the sale of goods and/or services produced by an asset.

Asset backed lending is typically provided to a Project Company, a corporate entity established with the specific purpose of owning, developing and operating an asset. Financing is provided to the Project Company with recourse solely to the shares held in, and assets held by, that Project Company.

Cash generation to service loans and other financing relies on the monetisation of the goods and/or services that a Project Company's assets provide. Lenders implement a security structure that allows them to take control of the Project Company and its assets to optimise the monetisation of goods and/or services associated with such assets if the Project Company has difficulties complying with its financing terms.

The Investment Manager uses a covenant-heavy approach to lending within these structures as opposed to a 'covenant-lite' approach. The former is an approach which tailors loans to each borrower and requires the borrowers to meet well defined and specific performance measurements or covenants. The latter is a loan facility with less restrictions on the borrower and with fewer protections for the lender. The Investment Manager continues to see significant benefits in a covenant-heavy approach with information reporting requirements providing visibility of potential issues, if any arise.

Active management

The Investment Manager continues to work closely with borrower management teams which it sees as crucial to navigating the changing macro-economic environment. As well as receiving information mandated under the loan documentation, the Investment Manager's designated portfolio management team seek to maintain a regular dialogue with borrowers to ensure any potential issues are identified early and can be escalated appropriately.

In the year, this engagement has included additional data collection relating to climate risk and ESG factors to improve information held on the portfolio further information is included below.

In addition, the Investment Manager has focused on the ability of operational assets within the portfolio to meet rising energy and staffing costs. Whilst there has been no impact on loan performance to date, this is an area the Investment Manager continues to monitor, particularly for the nursery and care home sectors where there is greater exposure to staff costs.

Portfolio rotation

The portfolio has a weighted average loan duration of six years which allows for rotation of the investments over a relatively short period. This enables the Investment Manager to maintain a diversified portfolio of investments which reflect the prevailing market risk-adjusted rates of return.

Repayments of £95.6 million were received by the Company during the year. The Investment Manager seeks to carefully manage repayments and match to the pipeline of investments to efficiently deploy capital and utilise the Company's RCF.

The table below sets out the top five full repayments received during the year and a description of key assets.

Football finance

The Group's first three loans in the football finance sector repaid in full during the year, representing a total of £27.3 million in principal repayment. The loans had an average interest rate of 6.6% and were secured against broadcasting income and player transfer contracts. Two of the loans were to European clubs and one to a Premier League club in the UK. During the year, these repayments were reinvested with a total of £22.8 million of new investment into the sector at an average interest rate of 7.5% which represents 8.0% of the loan portfolio at year end.

Residential property portfolio

The Group continues to lend against a variety of residential property and property lending strategies. During the year, £53.4 million was received in repayments in this sector. This included two short-term bridging loans totalling £13.9 million for development sites in London which refinanced into construction financing with other lenders in the market.

Student accommodation

Since 2016, the Group has provided financing to student accommodation projects in the UK and overseas. This year, partial repayments were made on two of these loans; one secured against an operational site in Dublin, Ireland and the other against a portfolio of operational and development sites across Australia. The partial repayments were met through equity contributions which reduced the interest on these loans as well as reducing the LTV1.

Overseas investment

The Investment Manager continues to take a cautious approach to investment outside the UK, whilst appreciating the benefit of geographical diversification for the Group.

At 31 December 2022, 20% of the portfolio was invested in assets outside the UK. Some examples of these investments are:

- a student accommodation project in Dublin which opened in September 2021 and is currently at 97% occupancy;

- a residential co-living development in Boston which reached practical completion in December 2022, offering 477 units in an underserved area of the city; and

- football finance deals secured against broadcasting income for clubs competing in La Liga, a Spanish football league, and Serie A, an Italian football league.

During the year, headwinds in the UK property sector drove an increase in discount rates on UK property exposure from the Company's independent Valuation Agent. Whilst a number of the overseas assets were not subject to the same changes, downward revaluations were seen on assets within the Co-living group exposure.

Due diligence for overseas projects involves specialist advice from relevant advisers to ensure that issues specific to the jurisdiction of the assets is considered and documentation of the loans meets any local requirements. In most instances, projects overseas are with sponsors known to the Investment Manager and often who are looking to expand their business following successful projects in the UK.

Currently, one identified pipeline project is an overseas opportunity.

Full repayments during the year (top five by value)

1. Alternative performance measure - refer below for definitions and calculation methodology.

2. The IRR for asset finance loans does not include the associated costs of hedging foreign exchange exposure.

Construction projects

The portfolio has 16.9% exposure to projects currently under construction at the year end. This continues to provide positive diversification for the Group, often representing higher yield investments to reflect construction risk, with completed assets giving the Group exposure to substantially de-risked operational projects.

Across the portfolio, construction projects include:

- a purpose-built care home in an undersupplied area of South Wales;

- affordable housing units being developed on an airspace in South London, supported by the Greater London Authority;

- an exclusive development of luxury homes outside London;

- student accommodation projects in Australia; and

- co-living developments in the US.

Through the year, there has been significant cost inflation for construction materials following supply chain issues and energy cost increases driven by the ongoing conflict in Ukraine. All of the construction projects in the portfolio are under fixed-price construction contracts and the Investment Manager has not seen any impact on the loan position, with any cost increases agreed with contractors being absorbed by additional equity or within budgeted contingencies.

In the due diligence process for construction projects, the Investment Manager considers the creditworthiness and suitability of the construction counterparty to the relevant project as a key factor of the investment process. In addition, collateral warranties and contract assignments are taken as part of the security package on these projects.

At the time of writing, the Investment Manager is seeing a slowing of construction cost inflation and more competitive pricing from contractors for their work. The current pipeline includes two construction projects.

Investment pipeline

The Investment Manager actively manages a pipeline of investment opportunities available to the Group to ensure efficient deployment of capital. The Investment Manager is continuing to see an attractive pipeline of opportunities across a variety of sectors.

The current pipeline represents c.£56 million of opportunities in the social infrastructure, asset finance and property sectors. Since the year end, £13.1 million has been successfully transacted in loans to a bridging loan company and to residential property development.

As has historically been the case for the Group, many of the pipeline projects are follow-on deals with existing borrowers with whom the Investment Manager maintains close working relationships. Equally, the Investment Manager is working closely with existing borrowers who are looking to extend their loans to optimise sales values of their assets.

Pipeline opportunities are 93% senior loans with a weighted average yield of 9.3%, with c.7% overseas assets.

Asset update - Co-living group loan

Background

Co-living is a maturing sector in the private residential rental market which provides studio apartments with high-quality shared living facilities at a price point below comparable market rent. The product typically targets young professionals or visitors to an area looking for short-term, high-quality accommodation.

The Company first advanced a loan to the Co-living group in March 2017 with an initial investment of £5.3 million growing over time to support the Co-living group's growth across multiple properties.

In late 2019, the Investment Manager was approached with a proposal to enter into a larger facility alongside Deutsche Bank, the 'Lender group'. Under the new facility, the Company held commitments of c.38% of the total facility of £140.0 million (£52.8 million) which comprised three tranches. Only the first tranche of this facility was drawn due to the impact of Covid-19. Upon entering the loan agreement, the Company's total exposure to the Co-living group was reduced from £48.5 million to £30.0 million, although the Co-living group's total borrowing (across multiple lenders) increased as a result of the transaction.

Following the breach of a liquidity covenant in May 2021, driven by challenges of operating under Covid-19 restrictions and the Co-living group's inability to access further secondary funding for development sites, the Lender group stepped in to progress a sale of the Co-living group.

Unfortunately, there were a number of failed sales processes for the Co-living group. To realise maximum value from the assets, the Lender group established a 'Bidco' to transfer key assets out of the Co-living group for stabilisation and sale.

Process update

During the year, there was a further write-down of the net realisable value of this loan from £18.8 million at 31 December 2021 to £4.4 million at the year end, for the following reasons:

- multiple sales processes on the key US asset were frustrated by reduced availability of funding packages for prospective purchasers, resulting in write-downs on these positions;

- sale of the flagship Canary Wharf asset, whilst completed prior to the year end, included a negotiated retention in respect of the VAT position of the asset. Within the Company's valuation, it has been assumed that this is not recovered in full;

- stabilisation of the Old Oak asset is ongoing, with a focus on fire reporting required for an optimal sales process. The asset is confirmed to be safe for operations but may require remediation works to complete a sale with financing. As such, the valuation has been adjusted to assume complete remediation works and reflects increased costs of operating the asset;

- development of a further key site is ongoing, but given cost inflation on construction, headwinds in the UK property sector and the nature of the Lender group's interest in the asset, the realisable value for the Lender group on completion has been reduced accordingly;

- the Lender group was unable to reach agreement with senior lenders on a number of smaller portfolio assets resulting in £nil assumed recovery on these assets; and

- cost estimates to wind up the acquisition vehicle have been revised upwards.

In total, the Company has invested £36.3 million of cash, capitalised £4.8 million of interest and fees, and received cash repayments of £1.6 million, resulting in a net total investment of £39.4 million. The fair valuation at 31 December 2022 was £4.4 million based on an estimate of the net realisable value. This is clearly an extremely disappointing result for the Company and Investment Manager, and is as a result of a complex loan structure, involvement of multiple stakeholders and an expensive work-out process. The structure of this loan in the portfolio was unique and whilst the Company continues to have exposure to the co-living sector, the Investment Manager has taken on board the lessons learnt from this process. These include changes to the investment process and loan structuring, including:

- no other group lending facilities to retain control over lender decisions;

- no new 'holding company' positions with loans secured as close to the assets and operations as possible; and

- investment papers to include exit strategies in both base case and downside scenarios (e.g. steps that could be taken to dispose of the assets and potential purchasers).

Current position

At the time of writing, the latest position on the remaining assets is:

- one large US asset is in advanced negotiations for a sale. This asset is currently held at £nil value so any release to the Lender group would be positive for the Company;

- advisers are working on comprehensive fire reporting on the Old Oak site. The Lender group is working closely with the senior lender on this site; and

- post period end, the Lender group has sold its interests in the last development asset. This transaction does not have a material impact on the fair value of the Co-Living group loan at 31 December 2022.

Investment Manager update

Following the Investment Manager personnel changes announced by the Company in October 2022, the Investment Manager has been working closely with the Board to ensure the continued provision of investment management services to the Company. Joanne Fisk and Philip Kent will continue as co-managers of the Fund on a permanent basis with the support of 11 full-time professionals. The wider team provides dedicated and shared credit investment resource, dedicated portfolio management, as well as investor relations, finance, legal, compliance and administrative services. The Investment Manager benefits from an experienced investment team that has been responsible for over £4.2 billion of investment into the infrastructure, real asset and real estate debt sectors since 2008. Biographies of key personnel at the Investment Manager are listed below.

Mr Kent co-led the day-to-day management of the Company between May 2016 and 2018, thereafter remaining on the investment committee for the Company. He has led debt investments in projects with a capital value of over £1.5 billion at the Investment Manager and has co-managed GCP Infra since 2018. Ms Fisk has worked exclusively on the Company since joining the Investment Manager in 2017 and has a depth of experience, including playing a key role in identifying investments, leading negotiations, liaising with borrowers and overseeing portfolio developments. Mr Kent has been added as a key person under the investment management agreement between the Company and the Investment Manager.

The Company continues to benefit from the breadth and depth of experience of the Investment Manager's investment committee which comprises Philip Kent, Nick Barker, Saira Johnston, Ed Simpson and Gravis founders, Nick Parker and Stephen Ellis. Further, the Investment Manager also continues to benefit from its strategic relationship with ORIX Corporation, which acquired 70% of the business in 2021. ORIX is publicly traded in Tokyo and New York, with a market capitalisation of c.$26 billion and c.$350 billion of assets under management, including significant credit and asset management businesses in Japan, Asia more widely, the US and Europe.

In addition to the current personnel, the Investment Manager continues to actively recruit for a Head of Private Credit for the Company.The intention is that this senior role will provide additional support to Ms Fisk and Mr Kent and focus on new opportunities to complement the strategic objectives of the Company.

Social infrastructure

Assets such as homes for the elderly, student accommodation and nurseries.

Investments into the social infrastructure space remain a core component of the Group's activity. The Investment Manager has targeted investment into areas where structural demand can be identified. Due diligence in this sector focuses on management teams, demand demographics, regulatory landscape and ESG impacts of the project.

During the year, the multi-use community facilities have continued to face challenges. The larger of the two assets was transferred in October 2022 to a new operator with significant experience in similar venues in London. The new operator is undertaking capital works to the site to support greater revenue generation from events at the site. The smaller of the two sites continues to improve operations following the lifting of Covid-19 restrictions in early 2022. The Investment Manager is working closely with the operators and other key stakeholders to improve top-line revenue at the site.

The Company has exposure to a portfolio of supported living properties, of which three of the properties have seen a period of reduced rent. These properties are managed by the Registered Provider, MySpace Housing Solutions, who received an enforcement notice from the Regulator of Social Housing. Whilst the properties within the portfolio continue to be well occupied and with payments made by relevant local authorities, the challenges at the Registered Provider have caused cash flow issues for the borrower; the exposure equates to c.1.5% of the portfolio. The Investment Manager continues to work closely with the borrower and the Registered Provider to seek a resolution to this issue.

Care homes within the portfolio have performed well through the year, reaching occupancy of 90% at year end. The Group made an additional investment of £2.7 million against these stabilised assets and agreed a small reduction in interest rate to recognise the de-risking of these assets. One care home remains under construction. The project is on schedule and located in an area of significant undersupply for care provision. Practical completion is expected in July 2023 and the Investment Manager looks forward to working with this developer on their pipeline of further projects.

The nursery assets have performed well over the year. The nursery group has grown to a total of 26 sites and secured new equity investment. Stabilised sites (operating for 18 months) are operating at 93% occupancy, with good demand for development and ramp-up sites, although occupancy on some projects is limited by availability of staff. Again, the Investment Manager is hoping to continue supporting the group over the coming year in their expansion.

Across both the operational care home and nursery projects, increases in operating costs have been a key area of focus for the Investment Manager. In particular, both asset classes are exposed to rising energy and staffing costs. Management teams have reacted positively to date, with no impact on loan payments.

This sector includes loans secured against assets located in the UK (79%), Europe (8%), the US (3%) and Australia (10%).

Structural characteristics

- Provide core services

- Generate stable cash flows

- Require longer-term funding solutions

- Can benefit from partial RPI/CPI protections

- Benefit from supply/demand imbalances in particular geographies

Current investments

- Supported living

- Care homes

- Student accommodation

- Nursery facilities

- Multi-use community facilities

£164.3m

Valuation of sector within the portfolio

38%

Percentage of portfolio by value

SDG alignment¹

UN SDG 3 Good health and well-being

UN SDG 4 Quality education

1. Refer below for further information.

Energy and infrastructure

Assets such as CNG stations and solar O&M contracts.

The Investment Manager has historically had opportunities to invest in infrastructure supporting a sustainable future. Over the last few years, investment in this space has become competitive with early-stage investments by the Group into 'last-mile' water infrastructure and battery storage being refinanced through sales to institutional funders.

The Group continues to support three CNG stations, providing alternative fuelling for leading UK businesses and haulage companies. The three stations supported by the Group have displaced the equivalent of 6.8 million litres of diesel fuel over the last year with 100% renewable waste- derived biomethane. Biomethane emits c.80% less CO2 than diesel, meaning the CNG stations contribute to avoiding the impact diesel has on the environment. The ability to use these stations is supporting companies in moving towards net zero carbon emissions.

In the year, a loan secured against a small portfolio of UK renewable energy projects was repaid, providing an overall IRR of 6.9% to the Company.

Elsewhere in the portfolio, the Group provides financing secured against contracted payment for operations and maintenance of solar panels. These contracts are long-term and have met all regular principal and interest payments over the loan life to date. Monitoring of these loans includes updates on the underlying counterparties and service provision under the contracts.

Rising energy prices throughout 2022 have driven further market investment in the energy and infrastructure space. Whilst there are no assets in the immediate pipeline, the Investment Manager is hoping to identify new areas for investment in this sector.

This sector includes loans secured against assets in the UK (75%) and Hong Kong (25%).

Structural characteristics

- Provide core services

- Generate stable cash flows

- Rapidly changing energy system drives need for ancillary investment

- Capital intensive sector

Current investments

- Solar O&M

- Water infrastructure

- Battery storage (repaid during 2022)

- CNG fuel stations

- Renewable energy (repaid during 2022)

£15.9m

Valuation of sector within the portfolio

4%

Percentage of portfolio by value

SDG alignment¹

UN SDG 8 Decent work and economic growth

UN SDG 9 Industry, innovation and infrastructure

1. Refer below for further information.

Asset finance

Assets such as FX contracts and football finance.

Asset finance represents a variety of sectors for the Group, encompassing investments in football finance, management fee contracts, FX contracts and boiler servicing.

Loans within asset finance are often secured against long-term contracted income instead of physical assets. In assessing these loans, there is therefore a focus on the counterparty risk for the underlying payments over the life of the loan.

During the year, three football finance loans were repaid in full. Exposure in this sector is secured against revenue from major football leagues in respect of broadcasting revenue or from large clubs in respect of player transfer receivables. In each loan, there are significant contractual, regulatory and market protections. Repayments in the year were matched with new investment into the sector using similar financing structures and counterparties in the market. The Investment Manager continues to see good opportunities in this space but is not targeting an overall increase in these investments as a percentage of the portfolio to ensure continued diversification of risk.

Post year end, a payment comprising interest and principal amounts was missed on one of the overseas football finance facilities due to a cashflow issue resulting from a change in legislation in the asset jurisdiction. This loan benefits from a partial guarantee which has been triggered and the Investment Manager is working closely with the football club to agree a revised repayment plan for the loan. At the time of writing, there is no expectation of a loss on the underlying position.

In the last quarter of 2022, an additional £6.0 million was invested into foreign exchange margin call financing. Through this structure, the Group is able to offer margin financing for credit approved counterparties of its borrower. The loan is secured against a profitable foreign exchange business with a net asset value covenant ensuring an LTV of below 50% on the loan at all times and is ultimately exposed to a diverse client pool. Equally, rigorous reporting and approval of new credit lines are maintained to ensure risk is minimised. This loan gives the Company access to high-quality counterparties and allows the borrower to offer margin financing to its diverse client pool.

Elsewhere in the portfolio, loans secured against music royalties, management fee income and boiler contracts continue to perform in line with expectations.

This sector includes loans secured against assets located in the UK (77%), Europe (15%) and Australia (8%).

Structural characteristics

- Strong contractual protections

- Stable cash flows from fixed contracts

- RPI/CPI linkage

Current investments

- Boiler servicing

- Management fee income

- Credit margins against FX trades

- Football finance

- Music royalties

£55.1m

Valuation of sector within the portfolio

13%

Percentage of portfolio by value

SDG alignment¹

UN SDG 8 Decent work and economic growth

UN SDG 9 Industry, innovation and infrastructure

1. Refer below for further information.

Property

Assets such as financing for property purchases or development and co‑living spaces.

Exposure to property assets remains a key focus for the Investment Manager with almost half of the portfolio invested into property strategies.

The Group provides bespoke financing solutions across a wide range of different sub-sectors. This gives the Group a diversified risk profile across the sector.

During the year, the Group's first investment into the US residential market reached practical completion. The site, located in Boston, Massachusetts completed in December 2022, comprising 477 units of co-living accommodation to meet demand from young professionals and students in an undersupplied location close to workplaces, universities and local amenities. Demand for the site has been strong, with occupancy currently at 55% within only a few months of operations. The Group has exposure to two further development sites in the US, one project under development in Boston, Massachusetts and a project in San Jose, California which is expected to reach practical completion by October 2024.

The loan to the Co-living group continued to face challenges in the year; a further update is included below.

Over the coming year, the Investment Manager is anticipating reductions in the value of residential property in the UK, primarily due to the macro-economic environment. Increases in base rates over recent months have driven a slowdown of transaction activity, as seen by a drop-off in residential mortgage applications in Q4 2022 which is likely to lead to reduced transaction volumes in early 2023. The impact of valuation decreases will impact differently across the Group's different investments.

Notwithstanding the disappointing reduction in realisable value on the Co-living group loan, the Investment Manager is comfortable that the Group has sufficient headroom against falls in property valuation across the balance of the portfolio with an average LTV¹ of c.70% across the property exposure. Equally, the Investment Manager maintains good working relationships with borrowers in the market, giving access to a wide range of exit strategies for any problem assets, including conversion into rental portfolios, sale or refinancing.

The Investment Manager continues to see good opportunities for investment secured against property assets. The current pipeline includes two assets within this sector.

This sector includes loans secured against assets based in the UK (83%), Europe (4%) and the US (13%).

Structural characteristics

- Secured against physical assets

- Generate stable cash flows

- Short-term financing

- Well understood and valued sector

Current investments

- Bridging loans

- Buy-to-let

- Co-living

- Land

- Warehousing of buy-to-let

£195.7m

Valuation of sector within the portfolio

13%

Percentage of portfolio by value

SDG alignment²

UN SDG 8 Decent work and economic growth

UN SDG 11 Sustainable cities and communities

1. Alternative performance measure - refer below for definitions and calculation methodology.

2. Refer below for further information.

Portfolio summary

Portfolio

The Group's investments are supported by a diverse range of assets located predominantly in the UK. At 31 December 2022, the weighted average annualised yield1 was 8.0% across the portfolio (8.3% excluding the Co-living group loan) with a weighted average expected term of six years (31 December 2021: 7.3% (8.0% excluding the Co-living group loan) and five years, respectively). In total, 50 loans have been advanced to Project Companies with operating assets. The remaining nine loans have been advanced to Project Companies with assets under construction (31 December 2021: 52 operating loans and eight under construction).

Investment valuation

The Valuation Agent carries out a fair market valuation of all the Group's investments on behalf of the Board on a semi-annual basis. Any assets which may be subject to discount rate changes are valued on a quarterly basis. The valuation principles used by the Valuation Agent are based on a discounted cash flow methodology. A fair value for each asset acquired by the Group is calculated by applying a discount rate (determined by the Valuation Agent) to the cash flow expected to arise from each asset.

At the year end, all assets were valued using a discounted cash flow methodology apart from the Co-living group loan which is held at net realisable value. Further detail on the valuation methodology is given in note 17 to the financial statements.

The weighted average discount rate1 across the portfolio at 31 December 2022 was 8.4% (31 December 2021: 7.5%). The valuation of investments is sensitive to changes in discount rates applied. Sensitivity analysis detailing the impact of a change in discount rates is given in note 17 to the financial statements.

Portfolio by sector type

Asset finance 13%

- Football finance 8%

- FX contracts 2%

- Asset finance 1%

- Domestic boilers 1%

- Music royalties 1%

Energy and infrastructure 4%

- O&M contracts 2%

- Contract income 1%

- Natural gas 1%

Property 45%

- Residential property 29%

- Co-living2 9%

- Buy-to-let mortgages 5%

- Land 2%

Social infrastructure 38%

- Care home 14%

- Student accommodation 10%

- Social housing 7%

- Domestic Nursery 6%

- Multi-use community facilities 1%

Portfolio by security ranking

Senior 69%

Subordinated 31%

Portfolio by term profile

5 - 10 yrs 7%

>10 yrs 22%

Portfolio by interest rate profile

7-8% 47%

8-9% 25%

>9% 11%

Portfolio by location

UK 80%

Europe 7%

Rest of world 13%

1. Alternative performance measure - refer below for definitions and calculation methodology.

2. The Co-living group loan represents 1.1% of the total portfolio.

Investment portfolio

Top ten investments by value

Key

1. Sector type

2. % of portfolio by value

3. Asset class

4. Multi/single asset exposure

1. Development Fin Co 6

1. Property

2. 8.0%

3. Residential property

4. Multi asset

2. Bridging Co 1

1. Property

2. 5.7%

3. Residential property

4. Multi asset

3. Student Accom 2

1. Social infrastructure

2. 4.7%

3. Student accommodation

4 Single asset

4. Development Fin

1. Property

2. 4.3%

3. Residential property

4. Multi asset

5. Care Homes Co 2

1. Social infrastructure

2. 3.7%

3. Care home

4. Single asset

6. Property Co 2

1. Social infrastructure

2. 3.6%

3. Social housing

4. Multi asset

7. Care Homes Co 3

1. Social infrastructure

2. 3.5%

3. Care home

4. Single asset

8. Property Co 7

1. Property

2. 3.4%

3. Residential property

4. Multi asset

9. Care Homes Co 5

1. Social infrastructure

2. 3.1%

3. Care home

4. Single asset

10. Mortgage Co 2

1. Property

2. 3.1%

3. Buy-to-let mortgages

4. Multi asset

Further information on the Group's portfolio can be found on the Company's website.

Portfolio performance

The portfolio currently consists of 59 loans across 21 discrete asset classes, providing a diversified portfolio to investors.

Four loans in the year have proved challenging: investments in the Co-living group, the multi-use community facilities and a small number of supported living properties.

Through a difficult macro-economic environment and continued challenges from the recovery from the Covid-19 pandemic, the work-out process from historic defaults on the Co-living group loan and the stabilisation of the multi-use community facilities have continued, with delayed rental payments also occurring on a small number of supported living units during the year; refer above for further information.

Notwithstanding these challenges, 55 loans in the portfolio, representing 96% by value, performed well during the year. Post year end, one further loan representing 0.5% of the portfolio by value, missed a payment comprising interest and principal amounts due to changes in legislation in the asset jurisdiction. An update on this position is included above.

Given the wider market changes over the year, the Investment Manager is taking opportunities to ensure that the loans in the portfolio generate appropriate risk-adjusted rates of return through a number of mechanisms:

- redeployment of capital into new investments at higher rates of return, reflecting shifts in market rates for risk;

- use of inflation and interest rate linkage mechanics within the portfolio; and

- negotiation of increased rates on amendments and extensions for existing loans.

Through these methods, the weighted average annualised yield1 on the portfolio has increased from 7.3% at 31 December 2021 to 8.0%2 at 31 December 2022.

Loans within the property sector have performed well this year, with securitisation on the buy-to-let mortgage portfolio in May 2022 demonstrating continued institutional demand for portfolios of performing loans in the sector.

Equally, in the social infrastructure sector, student accommodation has had a positive year as the lifting of Covid-19 restrictions has allowed for a return to high occupancy levels on assets in the UK and Ireland. The Group also has exposure to a portfolio of student accommodation in Australia which had been adversely impacted by the Covid-19 restrictions in place which prevented opening of universities and entry by overseas students. Positively, occupancy on these assets has now improved and the Investment Manager anticipates an exit through sale of these assets by the borrower in the coming year. Assets in Ireland and the UK have bounced back quickly with occupancy at 98.5% across the Group's exposure.

The dividend continues to be fully covered on an adjusted EPS1 basis and the efficient deployment of capital into higher yielding loans is positive for the Group's ability to continue this level of coverage.

The dividend was 0.28 times covered by EPS of 1.75 pence and 1.04 times covered by an adjusted EPS1 of 6.58 pence.

1. Alternative performance measure - refer to below] for definitions and calculation methodology.

2. Including the Company's Co-living group loan which is held at net realisable value. Excluding this loan, the weighted average annualised yield1 is 8.3%.

Key investment highlights

The Group made 32 advances during the year totalling £102.0 million, comprising eight new loans and 24 follow-on investments to existing borrowers. From these advances, three were in the energy and infrastructure sector; four in asset finance; 13 in property; and twelve in social infrastructure projects. The Group received capital repayments of £95.6 million, along with prepayment fees of £0.8 million.

Post year end, the Group made a further four advances totalling £13.9 million and received 27 repayments totalling £12.5 million. There are no investment drawdown commitments at the date of the report.

Investments and repayments made during the year1

Investments and repayments made post year end1

1. The Company makes its investments through its wholly owned Subsidiary. Refer to note 1 to the financial statements for further information.

2. Includes development projects that were subject to review by the Board under the Company's investment approval process; refer below.

Inflation

Inflation in the UK has continued to reach record rates throughout the year, with the Consumer Prices Index ("CPI") rising by 10.5% in the twelve months to 31 December 2022. The increases have been driven by the ongoing conflict in Ukraine and the global recovery from the Covid-19 pandemic, pushing increases in energy prices in particular.

Through the year, Bank of England base rates increased from 0.25% to 3.50% with further increases to 4.25% post year end.

Whilst there is a lag between market movements and the Group's investment activity, the Group is able to respond to the macro-economic environment in a number of key ways:

- including inflation and/or base interest rate linkage mechanics in the portfolio. These mechanics are set out in more detail below but provide some level of protection against market movements; and

- re-investment of loans at prevailing rates. Given the weighted average duration of the portfolio of six years, the Group is able to reset rates in the portfolio over a relatively short time period. Over the year, the weighted average yield on repayments was 7.7% with new investments at 8.6%.

In total, 53% of the portfolio by value has partial inflation and/or interest rate protection in three different mechanisms:

- direct interest rate linkage to CPI, RPI (primarily for social housing assets) or Bank of England base rate (for property assets with senior lending lines);

- indirect linkage through principal indexation (strike price on indexation that causes step up in principal when RPI/CPI spikes above a certain level); and

- share of any upside generated in project SPVs through profit-sharing mechanisms or share warrant structures.

The Investment Manager works closely with borrowers when applying these mechanisms to ensure that they are appropriate and do not place undue pressure on a borrower's business model. However, to date these mechanics have been applied to all loans where the contractual triggers have been met except for two instances; one where the Company holds the equity position, so there was no benefit in doing so, and one where the loan had amortised ahead of schedule so the impact of triggering the increase would have been de minimis.

In the year, these mechanics had the following impacts:

- yield movements: increases in the Bank of England base rates during the year meant that 16 loans were subject to rate increases. Increases were an average of 80 basis points over the year on these loans; and

- NAV movements: correspondingly, increases in yield as well as principal indexation on five loans offset some of the decreases in the NAV due to discount rate increases and write-downs on the Co-living group loan. The Valuation Agent does not typically forecast any future increases in rates or loans due to inflation within the Company's NAV due to the discretionary nature of applying these mechanics.

The year has been one of significant market changes. However, the Investment Manager is confident in the Group's ability to adapt over a relatively short time frame and is pleased to see the positive impact these strategies and mechanics have had over the year.

Inflation remains a key area for monitoring, particularly on operational assets facing cost challenges.

Portfolio optimisation

Given the strength of the pipeline, utilisation of available capital is high and some borrowers are looking to extend their loans to maximise returns on disposal. As such, there could be a reduced focus on deployment and this provides an opportunity to look at ways in which the current portfolio can be enhanced.

The Investment Manager has identified a number of strategies which could be used to enhance the portfolio or boost returns. The Investment Manager is keeping each of these options under consideration to ensure that the Group adapts appropriately to the macro-economic environment and continues to offer investors optimal returns matched to the risk profile of the portfolio.

1. Alternative performance measure - refer below for definitions and calculation methodology.

FINANCIAL REVIEW OF THE YEAR

The Company has generated total income of £14.4 million and paid dividends of 6.325 pence per share. The total shareholder return1 for the year was -7.3% and total NAV return1 was 1.9%.

Financial performance

It has been a challenging financial year for the Company, due to the ongoing resolution of the Co‑living group loan resulting in further write‑downs and headwinds in the UK economy resulting in the Company's shares trading at a persistent discount to NAV.

In the year to 31 December 2022, the Company's portfolio generated interest of £31.9 million (31 December 2021: £32.9 million) a reduction compared to the prior year due to lower levels of capital deployed throughout the year. New and follow‑on investments are being made at higher rates of return to reflect the shift in rates seen across the lending market in 2022. Further information is given in the Investment Manager's report above.

Other income of £1.5 million (31 December 2021: £2.9 million) was generated which included prepayment fees of £0.8 million in respect of loans prepaid in the year (31 December 2021: £2.5 million). The prior year was a record year for such fees with a large prepayment received in respect of a waste recycling facility.

Total income was offset by net unrealised valuation losses of £17.7 million primarily in respect of write‑downs on the Co‑living group loan and increases to discount rates made by the Valuation Agent on the Group's UK property exposure. Further information is given in the Investment Manager's report above.

The Company invests in derivatives for investment purposes and efficient portfolio management. Realised losses of £1.3 million relating to certain overseas loans were incurred upon repayment during the year; these were partially offset by gains on realisation of forward contracts totalling £0.8 million. Overall net losses on derivative financial instruments for the year were £0.8 million. Further information is given in notes 3 and 17 to the financial statements.

The Company incurred total expenses of £5.7 million (31 December 2021: £5.6 million) which includes the Investment Manager's fee, other third party service provider costs and Directors' remuneration. Total expenses have remained broadly in line with the prior year, reflecting a decrease in variable fees due to a reduction in the NAV and an increase in operating expenses due to inflationary factors. Further information is given in notes 18, 4 and 6 to the financial statements respectively.

Finance costs have remained broadly static for the year with the Company utilising its RCF throughout the year. At the year end, £32.1 million was drawn (31 December 2021: £19.9 million).

The RCF is due to expire in August 2023 and includes an optional extension for an additional term of one year with lender approval. The Company, through the Investment Manager, has commenced a review of its financing arrangements with the intention of extending the RCF in advance of the date of expiry, as well as exploring alternatives should the RCF not be renewed. As such, the Board is satisfied that the Company can continue to meet its liabilities as they fall due over the next twelve months. Further information on the RCF is given in notes 2 and 14 to the financial statements.

Total profit and comprehensive income for the year was £7.7 million, a reduction from £15.0 million in the prior year.

Dividends

The Company met its stated aim of growing the dividend year‑on‑year, with interim dividends increasing from 6.30 pence per share in the prior year. The Company paid 6.325 pence per share in interim dividends, meeting the target set by the Board for the year ended 31 December 2022.

The total dividend was 0.28 times covered by EPS of 1.75 pence for the year and 1.04 times covered by an adjusted EPS1 of 6.58 pence. Further information on dividends is given in note 9 to the financial statements.

Ongoing charges

The Company's ongoing charges ratio1, calculated in accordance with the AIC methodology, was 1.2% (31 December 2021: 1.2%) for the year to 31 December 2022.

Earnings

The Company generated EPS of 1.75 pence (31 December 2021: 3.40 pence). Earnings for the year were primarily impacted by the additional write‑down of the net realisable value of the Co-living group loan and increases to discount rates. As noted previously, EPS excluding these factors (adjusted EPS1) for the year was 6.58 pence per share (31 December 2021: 7.22 pence), which would have more than fully covered the dividend for the year of 6.325 pence per share.

Adjustments to discount rates result in the revaluation of investments, which are reflected through fair value movements in the statement of comprehensive income, in accordance with IFRS.

NAV and share price

Net assets attributable to equity holders at 31 December 2022 were £412.0 million, down from £436.7 million at 31 December 2021. The Company's NAV per ordinary share has decreased from 99.29 pence at 31 December 2021 to 94.90 pence at 31 December 2022 primarily due to the write‑downs of the net realisable value of the Co-living group loan and increases in discount rates that have reduced the fair value of certain loans.

Prior to the market volatility seen since the Covid‑19 pandemic, the Company's share price had predominantly traded at a premium1 to NAV since the IPO of the Company in 2015, with an average premium¹ of 3.0%. Since that period, the Company has predominantly traded at a discount¹, with an average discount¹ of 7.0% since March 2020. The current geopolitical and market uncertainties have further negatively impacted the Company's share price this financial year with the shares trading at an average discount1 of 6.0%.

1. Alternative performance measure - refer below for definitions and calculation methodology.

Share repurchases

The Company continued its share buyback scheme during the year to demonstrate support for the NAV, to benefit from the consequent accretion to NAV and provide confidence to the market. A total of 5.7 million shares were repurchased during the year at a weighted average price of 81.39 pence per share. At 31 December 2022, there were 442.0 million ordinary shares in issue, of which 7.9 million were held in treasury.

Conflicts of interest

The Company has continued to finance existing construction projects of a number of private student accommodation and co‑living developments in Australia and the US, with £16.8 million drawn during the year (31 December 2021: £15.9 million). Certain of the directors and/or shareholders of the Investment Manager directly or indirectly own an equity interest in these development projects. In accordance with the Company's investment approval process, these investments were reviewed and approved by the Board.

Where there is any overlap for a potential investment with GCP Infra, a third party company advised by the Investment Manager, GCP Infra has a right of first refusal over such investment. GCP Infra has not exercised this right of first refusal since the Company's IPO.

Cash position

The Company received interest payments of £31.9 million and capital repayments of £95.6 million from its Subsidiary in the year (31 December 2021: £32.9 million and £117.7 million respectively). The Company paid cash dividends of £27.8 million during the year and a further £6.8 million post year end (31 December 2021: £27.7 million and £6.9 million respectively). The Company advanced £102.0 million (31 December 2021: £134.5 million) to the Subsidiary to make investments in accordance with the investment policy. Further information is included above.

Post year end, the Group made a further advances totalling £13.9 million and received repayments totalling £12.5 million. There were £nil investment commitments at the date of the report. Total cash reserves at the year end were £10.3 million (31 December: £10.1 million).

SUSTAINABILITY

The Company aims to operate a long-term, viable business model which does not detrimentally impact the environment and provides benefits to society where possible.

Governance

50:50

Board gender diversity at 31 December 2022

565

ESG data points collected from borrowers at 31 December 2022

24%

Portfolio assets visited during the year by value

Introduction

ESG is increasingly becoming a prominent factor that investors consider when making investment decisions. Companies are facing new challenges when considering value creation for their investors, sustainable strategies are being adopted and business models are changing. Considering ESG factors is helping businesses to assess how their activities impact the environment, and allows them to make informed decisions on how to create a more sustainable society and improve the environment.

Through its influence on companies, ESG is increasing corporate transparency and accountability. ESG reporting allows investors to assess whether companies are meeting their commitments in terms of environmental, social and governance issues. The Board and the Investment Manager are committed to improving the Company's ESG disclosures in the drive for more consistent reporting across the industry.

Institutions are being held accountable for the impacts their operations have on the environment through ESG reporting, which has become a driving force for positive change across the world, aligning organisations to frameworks such as the UN SDGs. Further information on Company alignment with the UN SDGs is given below.

ESG, however, is not just about reporting information, it is about its integration into day-to-day operations, which is why incorporating Responsible Investment principles into investment decisions and investment management processes is important for the Board, Investment Manager and the Group.

Responsible Investment

The Investment Manager has been a signatory to the PRI since 2019. The PRI, established in 2006, is a global collaborative network of investors working together to put the six principles of Responsible Investment into practice. The Investment Manager recognises that applying these principles better aligns investment activities with the broader interests of society and has committed to their adoption and implementation.

Responsible Investment incorporates ESG issues into the Investment Manager's investment analysis and decision making processes, as detailed below. ESG management for the Company at the Investment Manager is led by the investment team. The Investment Manager has established a Responsible Investment policy and a dedicated Responsible Investment committee to monitor and implement ESG initiatives across its organisation. Further information is provided below and information on the PRIs can be found on the PRI website: www.unpri.org.

ESG framework

The Company has embedded governance protocols into the way it manages its business. In order to develop this further, the Directors have aligned the Company's ESG framework with the PRIs. A summary of the framework is included below. Further information can be found on the Company's website.

Responsible Investment policy

The Investment Manager's Responsible Investment policy is integrated into investment management processes and incorporates pre-investment, active ownership and governance processes, as detailed below.

Data collection project

The Investment Manager has developed and quantified material ESG metrics for the underlying portfolio; refer to table below. The Investment Manager chose to carry out the data collection process in-house rather than outsource, as leveraging its detailed knowledge of the portfolio and existing relationships with the borrowers offered the most efficient approach and provided best value for shareholders.

The process involved the Investment Manager's portfolio management team liaising with each asset operator to obtain relevant ESG data on the underlying portfolio assets. This is the first year of collection and reporting and the initial data will be used to identify and set baseline metrics for future ESG reporting by the Company. The initial data points considered material are detailed in the table below. When considering materiality, the Investment Manager was advised by an external consultant, MJ Hudson, using framework guidance provided by GRESB, the EDCI and alignment with the UN SDGs. The scope of data collection will be kept under review.

MJ Hudson is a business with over 15 years of experience in the sustainability sector, assisting companies with their ESG implementation and transition plans. They advised on the ESG data collection process and conducted an independent review of the data for any significant inconsistencies. Furthermore, they assisted the Investment Manager in the creation of an ESG dashboard to report on performance against relevant themes and KPIs across the portfolio.

The Investment Manager will continue to liaise with asset operators to improve and refine the availability of future ESG data which will be collected and used as part of its regular reporting to shareholders in the Company's annual report. It will also consider obtaining independent assurance over the data. This was the first year such a detailed ESG-focused data collection exercise has been undertaken and there were several challenges faced in respect to the availability of the data requested, insofar as the Company is a debt provider and does not own or control the assets in the portfolio.

For future investments, the Investment Manager intends to include additional data clauses in any loan documentation to facilitate the collection of ESG data more easily.

The Board and the Investment Manager are committed to improving the Company's data capture and disclosure in the drive for more consistent reporting across the industry.

1. Percentage of data responses received per ESG area, weighted by portfolio value.

Corporate ESG initiatives

The Investment Manager is working towards running operations on a carbon-neutral basis for its financial year 2023 to support the transition to net zero. The Investment Manager's premises in London holds a BREEAM 'Excellent' rating and the offices are powered by renewable energy. This year, the Investment Manager revised its business travel policy to further encourage use of public transport and minimise flight travel to support its carbon neutral target.

To encourage employees to travel in more carbon efficient ways, the Investment Manager operates an electric vehicle scheme and a bike to work scheme. It operates an office consumables and paper recycling scheme, and all staff are provided with stainless steel, BPA-free, reusable water bottles and insulated cups to reduce the impact of single-use plastic. Furthermore, the Investment Manager offsets carbon emissions by contributing to a portfolio which is run by provider Climate Impact Partners, whose aim is to reduce one billion tonnes of CO2 by 2030.

Whilst the Board and the Investment Manager do not consider offsetting to be by any means a perfect solution to the impact activities have on the environment, both parties believe that it is a useful starting point. The ultimate aim is to reduce emissions and the intention is to continue to investigate and follow best practice in this area.

This year, the Investment Manager was awarded an 'Investors in People' accreditation. As part of the assessment, a business-wide survey was conducted to collate employee feedback, which has been used to drive better communication and introduce non-financial reward schemes. The Investment Manager has committed to working with Investors in People over the next three years; it encourages everyone in the business to reach their potential and it provides regular training to staff including funding specific industry qualifications. This year it also held formal ESG training for key employees and across the wider business. The Investment Manager also has a range of measures in place to support the physical and mental health of its employees, including a private healthcare package, weekly fitness classes and guidance on healthy home working. It offers hybrid working arrangements to all employees.

The Investment Manager actively supports diversity and inclusion and ensures that all employees are valued and treated with dignity and respect. To further efforts in this area, it has introduced annual diversity and inclusion training for all employees and is working on enhancing recruitment processes to provide a framework that supports a diverse and inclusive culture. It has also carried out a diversity survey to establish a baseline and facilitate improved reporting going forward.

The Investment Manager also operates a volunteering initiative which supports employees to volunteer for charitable or not-for-profit purposes by giving an additional two days' paid leave plus two days' unpaid leave per year. Furthermore, it partners with a charity of the year, to engage with in fundraising, events and through volunteering. The charity chosen this year was Little Village, a charity that supports local families. Since partnering with the charity, 39 employees have participated across the business with more than 170 hours spent volunteering at the Little Village depot, assisting the charity in cleaning and packaging items to be sent to families they support. This provided employees with an opportunity to work as a team, engage with the local community and understand more about the hardships low-income families with young children face. At the date of publication, total amounts raised for Little Village were over £40,000.

UN Sustainable Development Goals

Through its investments in assets which are integral to society, the Company's activities can align with certain of the UN SDGs. These goals were created in 2015 by the United Nations to create a better and more sustainable world by 2030. Examples include good health and well-being, quality education and sustainable cities and communities.

Through its investments in the development of social infrastructure, the Company can help to make a positive contribution to the provision of high-quality and safe buildings for vulnerable adults, healthcare patients and students. Further, through the Company and the Investment Manager's approach to governance, and to labour and health and safety, a positive contribution to the employees, customers, suppliers and local communities in which the assets operate can be made.

1. 38% female employees compared to 62% male at the Investment Manager.

2. Projects that meet the definition of 'affordable housing' under the UK Government's National Planning Policy Framework.

Portfolio sustainability

Social

£62,781

Amounts waived for ESG incentive schemes since introduction in 2021

30%

Portfolio by value providing benefits to society1 at 30 December 2022

1,319

FTEs at portfolio level at 31 December 2022

Societal benefits

The Company's business model aims to provide investment in assets which are integral to society. The Group can provide benefits to society through the provision of funding of assets, such as housing for vulnerable adults, care for the elderly and urban regeneration. The Group also provides finance for property purchases or developments which mainstream lenders cannot serve, for reasons other than credit quality.

At the year end, FTEs at portfolio level comprise c.1,300, of which c.1,000 are in the social infrastructure sector and c.200 in the property sector, with the remainder at asset finance and energy and infrastructure projects. The Group intends to continue to support borrowers that have a positive impact on society, as it enhances the security of the portfolio and brings wider benefits to the communities that the assets operate in.

ESG incentive schemes

Recognising the Company's role as a responsible debt provider, the Board approved a policy in 2021 for ESG target incentives on selected loans. Through this mechanism, agency fees (typically between £10,000 to £20,000 per annum for each loan) can be waived if agreed ESG targets or schemes are implemented by the borrower. The incentive mechanism is included in all term sheets issued by the Investment Manager on behalf of the Group.

To date, the Company has funded three initiatives through this mechanism as follows.

Nurseries

Bursary scheme for full-time nursery places for underprivileged children across the nurseries.

Every child should be afforded the opportunity of an outstanding education, but years of underfunding in the early years means accessing high-quality provision is not possible for all, especially in areas of deprivation. The rise in social inequalities due to the Covid-19 pandemic has only exacerbated the problem.

The bursary scheme gives children access to high-quality early years education. The nurseries themselves aim to be best in class, with four of the nurseries in the group awarded 'outstanding' ratings from Ofsted. The operational assets are fully occupied with significant waiting lists. By removing the challenges of accessing affordable, high-quality early years education for these families, we hope the futures of these children will be positively impacted.

The curriculum at the nurseries includes a heavy environmentalism focus and is designed to enable children to become informed and inspired changemakers, with one of the key four pillars being Global Responsibility. The nurseries are a participant in the Eco Schools programme and are working to achieve a green flag status. In addition, in 2020 they signalled their intention to become a B corporation and are working towards becoming net zero.

1. Measured in alignment with the UN SDGs: housing for vulnerable adults, care for the elderly, nurseries, urban regeneration and affordable housing.

Community facilities

Reduced-rent desk or studio spaces for entrepreneurs in the community facilities in which it invests.

One such facility is Hackney Bridge, a new, canalside public destination close to Hackney Wick, on a site that once housed part of the Clarnico sweet factory. These spaces are structured as affordable and the organisation actively connects members and the community.

The location is home to a diverse group of independent, creative local businesses; workspaces and studios, a street food market, bars, restaurants, local independent retailers, community gardens and an event space.

The developer worked with the local community to ensure what was being offered met their wants and needs. As well as providing the space local enterprises need to thrive, the organisation works with members to make a positive difference in the community. They invest time and skills into charitable projects and provide free space for community events.

The supported spaces give local entrepreneurs and enterprises the opportunity to see their business thrive. The spaces are available at a reduced rental value, with successful applicants to the scheme typically paying from 35% to 50% of the usual full rental value.

Co-living

Free co-living beds to support refugees fleeing from the conflict in Ukraine at the co-living properties.

One person took up the offer and lived in a co-living property for six months through the Ukraine family scheme. The Ukraine visa schemes were launched by the Government in March 2022. The schemes allowed individuals, charities, community groups and businesses to offer a route to safety for Ukrainians, even if they have no ties to the UK. The scheme played an important role in providing safe, temporary homes to people in need of urgent sanctuary after fleeing persecution, trauma, and conflict in Ukraine.

Those arriving under the scheme were able to live and work in the UK for up to three years and access healthcare, benefits, employment support, education, and English language tuition. The scheme has been a significant success with over 100,000 Ukrainian refugees arriving in the UK. A total of 37,500 more have valid visas and may choose to travel to the UK if circumstances change.

Environmental

44%1

Property portfolio with EPC rating of B or above at 31 December 2022

35%

Borrowers reporting green initiatives2 at 31 December 2022

6.8m

Litres of diesel displaced by 100% renewable waste-derived biomethane3

TCFD

Compliance statement

For accounting periods beginning on or after 1 January 2022, companies with a UK premium listing are required to report on a comply or explain basis against the recommendations of the TCFD. Although the Company, as an investment company, is currently excluded from such requirement, this year, as it progresses towards future compliance, the Company has provided a description under the four TCFD pillars of governance, strategy, risk management and metrics and targets, giving consideration to the TCFD 'Guidance for All Sectors' and the supplemental guidance for the financial sector.

The Company is working towards disclosure of all eleven recommendations under the four pillars and will ensure full compliance when applicable regulation applies to the Company.

Governance

The Company does not have an investment objective of sustainable investing nor does it use ESG criteria to evaluate investments or assess their societal impact within its stated investment appetite. The Directors do, however, believe in the integration of Responsible Investment principles across all aspects of the Company's operations including the application of ESG screening to ensuring its long-term success and the success of sectors within which it operates.

The Company has delegated investment management in accordance with the investment mandate to the Investment Manager; as such, the key decisions made by the Board in the ordinary course of business relate to the Company's strategy, stakeholder engagement and oversight of risk management.

These decisions are governed by the matters reserved for the Board and the terms of reference of the Board's committees. Ownership of ESG, including the oversight of climate-related risks and opportunities, is the responsibility of the Board, with the Board's committees having been delegated responsibility for ESG specific items through their terms of reference as follows:

- Audit committee: those relating to controls and processes over material financial data, valuations and reporting, internal assurance, third party review of data and external reporting and metrics.

- Risk committee: those relating to the impact of identified and emerging risks, initial borrower screening, ongoing due diligence and investment monitoring.

- Management Engagement committee: those relating to service provider ongoing compliance with their internal policies and alignment with the Company's strategy.

- Remuneration and Nomination committee: those relating to the composition, director skills and shareholder proxy company engagement and reports.

1. Percentage of portfolio with an EPC rating of B or above, 14% rated C, 5% rated D, E, and F, with the remainder either not applicable or not found.

2. Percentage of portfolio reporting green initiatives such as recycling schemes, low energy lighting, reduced use of paper, staff transport schemes, food waste and water collections.

3. Equivalent litres of diesel displaced by trucks in 2022 refuelling at the CNG stations in which the Company invests.

In addition, Joanna Dentskevich is the Director allocated responsibility for ESG to further facilitate the development of the Company's ESG framework, and to ensure the Company's ESG focus remains current and considered by the Board in their decisions, processes and policies. The Company's ESG framework is detailed further above and its ESG policy can be found on the Company's website.

The Investment Manager has a ten-year record of identifying assets with a core environmental and social benefit. Responsible Investment is at the core of investment management processes and is led by the investment team. These investment processes are overseen by the Responsible Investment committee, which reports into the board of the Investment Manager. Further information is provided above.

When evaluating and approving new investments, the Investment Manager directly and/or indirectly addresses climate-related physical and transition risks and opportunities. The Investment Manager's Investment committee reviews ESG impacts as part of the investment process. An ESG indicators dashboard is being developed to ensure consistent reporting to the Board for consideration as part of the quarterly reporting cycle.

The Investment Manager has carried out its first climate risk assessment for the Company for each underlying asset to assess climate-related risks and opportunities across the portfolio. Further information is given below. The Investment Manager also undertook a data collection project to help inform assessment of ESG impacts and climate risk within the portfolio; further information on the data collection project can be found above. Data collection, verification and analysis will be an ongoing process by the Investment Manager in order that annual ESG reporting can be kept up to date and relevant.

Strategy

Physical risks

Through the climate risk assessment, the Investment Manager, based on current climate conditions, believes the physical risk the portfolio is most exposed to arises from extreme weather events in the short, medium and long term. Time horizons have been defined as:

- short term: zero to three years;

- medium term: four to eight years; and

- long term: over eight years.

At this stage, the Investment Manager believes the main extreme weather event in the short term would be from flooding and may affect some of the assets within the property and social infrastructure sectors that are reliant on physical premises located in areas that have a higher risk of flooding. The possible impact on the borrower in these cases might be increased costs arising from water damage, remediation, impact on operations and higher insurance premiums.

In the medium to long term, the Investment Manager believes that extreme weather events such as higher temperatures and water shortages may also impact borrowers with loans associated with care homes, social housing and nurseries where further installation of air conditioning units and the additional costs associated with operating these assets may impact operators' profitability. Higher temperatures may also impact the valuation of properties which are poorly insulated or which were not designed to withstand extreme weather.

The majority of physical assets in the portfolio are located in the UK, in regions with no specific threat from earthquakes, storms or other natural disasters. For projects located in a region known for earthquake risk, storm or natural disasters, specific design features that have been incorporated will be considered to understand the impacts.

Transition risks

The Investment Manager believes the main transition risk the portfolio may be exposed to in the short, medium and long term will arise from changes to climate-related government policy and regulation. The introduction of the Minimum Energy Efficiency Standards ('MEES') may impact some properties with a focus on insulation and reduction of energy usage. Less modern properties with designs that currently do not comply with MEES may require further capital works to meet improved EPC ratings and/or specific air quality targets.

As the property sector within the portfolio mainly comprises short-dated loans across a diversified geography and sub-sectors, a level of mitigation to the impact of such government policy and regulatory changes has been identified. New loans to projects within the property sector are more likely to support more modern properties for which the design is more likely to comply with the MEES.

The impact on the portfolio of physical and transition risks may result in increased LTVs1 from a reduction in property values of older stock and increased credit risk due to operators' lower profitability potentially impacting their ability to meet payments. However, the results from the first climate change impact assessment indicate that whilst there exists some exposure to physical and transitional risks for some assets, the impact and probability of occurrence overall is considered by the Investment Manager to be low and that the financial impact in the context of the Company's diversified portfolio is likely to be immaterial.

As this was the first year the Investment Manager has undertaken a detailed climate risk assessment, the scope considered the impact of more extreme weather events but excluded consideration to a 2ºC or lower scenario. The Investment Manager will seek to carry out further analysis for future years.

Risk management

The way in which the Company manages risk and the principal risks and uncertainties are described below. The Board considers ESG risks, including those relating to climate change, to be a transverse risk to be managed within the existing risk categories identified in the Company's risk register.

To support the integration of ESG risks, including that of climate risk, into the Company's procedures, an ESG analysis was undertaken during the year to assess the impact of ESG on the Company's existing risk categories and any new categories that might emerge as a result. This assessment has led to clear actions to work towards over the coming years; refer below for further detail.

The Investment Manager directly and/or indirectly seeks to address climate-related risks and opportunities when evaluating and approving new investments. This includes the completion of a Responsible Investment checklist for each new investment. Given the diversity of sectors which the Company invests in, the approach to assessing and measuring ESG risks (including climate risks) naturally needs to reflect the unique characteristics of each investment.

Ongoing due diligence is carried out during the life of each asset to identify any new risks and changes to existing risks, including changes to Government and industry legal and regulatory requirements and assessment and the impact of flooding along with any other appropriate considerations.

Following the investment, its performance is monitored against the relevant covenants and information requirements that are contained within the terms of the loan agreement. The requirements are tailored to manage risks specific to each project and typically include financial, regulatory, operational and construction reporting, where relevant. Through the Responsible Investment checklist process, the Investment Manager seeks to identify ESG indicators to include in reporting and monitoring of borrowers to inform the way in which the investment is managed.

The Investment Manager is developing an ESG dashboard with the aim of providing regular and consistent reporting to the Board on how investment activities have incorporated ESG, including climate risk.

1. Alternative performance measure - refer below for definitions and calculation methodology.

Climate risk assessment

To understand the potential impact on the portfolio posed by climate risks, the Investment Manager has conducted a detailed portfolio-wide climate risk assessment on each of the 59 loans in the portfolio. The risk assessment considered nine risk factors associated with physical and transition risks deemed to be the most material to the overall portfolio. These were:

- Physical risks (events driven by a shift in temperatures and weather patterns):

- flooding; heat stress; water stress; fires and wildfires; and natural disasters.

- Transition risks (risks related to the transition to a low-carbon economy): policy or regulatory; technological; market; and reputational risks.

External and internal data points were used to assess the portfolio's exposure to changes to energy efficiency standards and to flooding. EPC ratings and flood risk data available for UK assets were obtained using databases provided by the UK Government.

A loan-by-loan assessment was also undertaken internally by the Investment Manager's portfolio management team to consider the specifics of each investment and to understand the overall exposure to climate change and any mitigating factors. The results from the risk assessment will be used as part of decision making in relation to portfolio management, to help identify with the borrower any further risk mitigation strategies, to better inform the impact, if any, on the underlying borrower's cash flows, to assess how that may impact on the performance of the loan and ultimately the financial forecasts of the Company.

Metrics and targets

The Company reports to stakeholders through its financial reporting and, through the Investment Manager, by way of quarterly updates. In turn, the Investment Manager provides regular reporting to the Board at its quarterly Board and committee meetings.

The Investment Manager is developing an ESG dashboard with the aim of providing regular and consistent reporting to the Board on how investment activities have incorporated ESG, including climate risk. The reporting will also include ESG metrics regarding fee incentive mechanisms, new transactions, due diligence issues raised on new transactions highlighted as a result of the Responsible Investment checklist and ongoing monitoring.

Greenhouse gas emissions

Being an externally managed investment company, the Company has no employees, does not own any property, nor purchase electricity, heat, steam or cooling for its own use and is therefore exempt from the new Streamlined Energy and Carbon Reporting disclosure requirements relating to Scope 1 (direct) and Scope 2 (indirect) GHG emissions. However, to meet UK introduced legislation regarding achieving net-zero greenhouse gas emissions by 2050, the Company will need to report Scope 3 emissions, which fall under two categories as defined by the GHG Protocol:

Category 1: Purchased goods and services

The emissions from services provided by the Investment Manager and the Administrator and emissions from travel of the Board are deemed to be the most material in the context of the Company's outsourced service model. The Board has elected not to disclose this information until further data points can be obtained and verified.

Category 15: Investments

As this is the first year a detailed data collection exercise has been undertaken to obtain emissions of the underlying portfolio, there were several challenges faced in respect to the availability of the data requested, insofar as the Company is a debt provider and does not own or control the assets in the portfolio. As such, emissions data points were only obtained from 22% of portfolio assets by value and the Company has therefore elected not to disclose this information until further data points can be obtained and verified.

The Investment Manager will continue to liaise with asset operators to improve and refine the availability of future ESG data which will be collected and reported on an annual basis. Further information on the data collection exercise can be found above.

The Board and the Investment Manager are committed to improving the Company's data capture and disclosure to help drive more consistent reporting across the industry. It is the Investment Manager's intention to develop the Company's approach to targets in the coming year to enable more detailed reporting.

Integration

The Company and the Investment Manager have made considerable progress with ESG integration over the past years.

Governance

The Company

In 2021, the Directors developed a Company ESG policy and framework, as detailed further above. The policy is based upon the PRIs to ensure alignment across its business and with its stakeholders.

To support the integration of ESG risks, including that of climate risk, into the Company's procedures, an ESG analysis was undertaken during the year to assess the impact of ESG on the Company's existing risk categories and any new categories that might emerge as a result. This assessment has led to clear actions to work towards over the next few years. Further details can be found below.

Investment Manager

In 2019, the Investment Manager became a signatory to the PRI and commenced work to integrate Responsible Investment criteria into investment processes. The Investment Manager published a Responsible Investment policy in 2020 outlining its commitments as a business and continued with its work to fully integrate ESG considerations in accordance with the PRI. Further information is included above.

In 2021, the Investment Manager formed a Responsible Investment committee. The committee comprises senior personnel from across the business and is responsible for all aspects of the Investment Manager's Responsible Investment policy; further information is given above. This year, the Investment Manager committed additional resource by recruiting a senior member of staff to lead on ESG and legal matters.

Reporting

The Company

The Board is committed to full compliance with applicable reporting standards in line with regulatory requirements and has included further detail in the annual report in regard to ESG and climate change. It is intended that this will include compliance with TCFD once it becomes applicable to investment companies.

In 2021, the Investment Manager commenced an assessment of flood risk across physical assets and analysed data for available EPC ratings. The assessment was expanded post year end to comprise a comprehensive review of all climate risks. Further information on the climate risk assessment can be found above.

Investment Manager

In 2021, the Investment Manager published its first Responsible Investment report for the financial year and further expanded the report in 2022 whilst also launching a dedicated area for Responsible Investment on its website. Further information can be found on the Investment Manager's website.

This year, the Investment Manager's Responsible Investment committee continued its work to achieve compliance with the core elements of the TCFD. As a company, it is currently exempt from the requirements, however the Investment Manager believes companies must be transparent on the financial implications of climate change to their business and clearly set out the actions they are taking to manage climate change risks and opportunities. The Investment Manager encourages the application of the TCFD framework in its funds.

Awareness

The Company

In 2021, recognising the Company's role as a responsible debt provider, the Board approved ESG target incentives with selected loans. Through this mechanism, agency fees can be waived if agreed ESG targets or schemes are implemented by the borrower. The incentive mechanism clause is included in all term sheets issued by the Investment Manager on behalf of the Company. To date, the Company has funded three ESG initiatives; these are further detailed above.

The Investment Manager has engaged with ESG rating agencies during the year and intends to further engage to understand how ESG ratings impact investor perceptions of the Company and share price.

Investment Manager

This year, the Investment Manager revised its business travel policy and set up a charity of the year scheme to contribute as an organisation. To further efforts with diversity across the business, the Investment Manager has introduced annual diversity and inclusion training for all employees and is working on enhancing recruitment processes to provide a recruitment framework that supports an inclusive culture. Further information can be found above.

STAKEHOLDERS

The Board values the importance of maintaining a high standard of business conduct and stakeholder engagement and ensuring a positive impact on the environment in which the Group operates.

Stakeholders

The Company engages with its stakeholders in different ways. This section outlines the key stakeholder groups, the importance of engagement and how the Company and the Board interacts. Stakeholders have been grouped into six key categories, with an overview of why and how the Company engages including, where relevant, key Board decisions which impacted these groups and the ways in which the Board considered their interests.

All Board discussions involve careful consideration of the longer-term consequences of any decisions and their implications for stakeholders. The Board values the importance of maintaining a high standard of business conduct and stakeholder engagement and ensuring a positive impact on the environment in which the Group operates.

Section 172:

Promoting the success of the Company

As a member of the AIC, the Company reports against the AIC Code on a comply or explain basis. Whilst the Company is not domiciled in the UK, by reporting against the AIC Code, the Company voluntarily meets any obligations in relation to the UK Code and specifically section 172 of the Companies Act 2006.

The Board of Directors consider, both individually and together, that they have acted in the way they consider, in good faith, would be most likely to promote the success of the Company for the benefit of its members as a whole (having regard to the stakeholders and matters set out in section 172 of the Companies Act 2006) in the decisions taken during the year as set out below.

The stakeholder model below demonstrates how the Company interacts with all of its stakeholders.

Shareholders

All investors in the Company, be they institutional, such as pension funds or wealth managers, or retail, such as private individuals.

Why engage

Through the provision of capital, shareholders enable the Company to pursue its investment objective. In return, the Company generates earnings for shareholders as well as growing the capital value of the portfolio over the long term.

How the Company engages

The Company, primarily through its Investment Manager and Broker, engages in ongoing communication with its shareholders via market interactions, webinars and shareholder, analyst and marketing presentations.

Shareholder engagement is reported to the Board on a quarterly basis. Feedback obtained through this engagement is taken into consideration when setting the future strategy of the Company and any Board decisions which may impact shareholders.

The Board encourages shareholders to attend and vote at general meetings of the Company so they may discuss governance and strategy and to understand shareholders' issues and concerns.

The Investment Manager has been engaging with shareholders throughout the year by holding meetings, hosting webinars and portfolio updates for investors, including holding a separate webinar to discuss the resignation of the lead fund manager, David Conlon.

The following engagement actions were taken subsequent to Mr Conlon's resignation:

- the Broker contacted the largest shareholders to ensure they were made aware of the change;

- one-to-one telephone calls were held with shareholders and the Investment Manager;

- the Chairman and the Broker engaged with shareholders on multiple occasions either through telephone calls or responded

- in writing to those who had requested information regarding the departure of Mr Conlon; and

- the Investment Manager organised a webinar with smaller shareholders.

Alongside the Investment Manager, the Company has continued to engage with shareholders by increasing both the quality and detail of its portfolio disclosures and this year its disclosures in respect of ESG. Feedback has been positive to date and both the Board and the Investment Manager are keen to engage with shareholders to address any questions or concerns they may have.

Key Board decision:

Share buybacks

Decision:

In October 2022, the Company recommenced its buyback programme in response to market volatility driven by the war in Ukraine, the recovery from the Covid-19 pandemic, high inflation, a cost-of-living crisis and subsequent impact on the share price.

The Directors have the authority to repurchase up to 14.99% of the Company's share capital if they believe it to be in the Company's and shareholders' interests as a whole and as a means of correcting any imbalance between supply of and demand for the shares. The latest authority was granted at the 2022 AGM and the Board will be seeking a renewal of the authority at the 2023 AGM.

At the date of recommencement of the scheme, the share price offered value to shareholders with the shares trading at significant discount¹, meaning any buybacks would be NAV accretive.

Process:

In October 2022, the Investment Manager and the Broker recommended that the Board consider reinstating the buyback programme.

A Board meeting was held to discuss the proposal with the Investment Manager and Broker present, to decide whether it would be in the best interests of the Company and shareholders. The Board considered, amongst other matters:

- whether the scheme would have an impact on the NAV and the share price discount1;

- the current investment pipeline; and

- the total cash available and investment opportunity.

It is recognised that the repurchase of shares does not have a significant impact on the share price.

During the latter half of 2022, the Chairman, the Investment Manager and the Broker met with a number of the Company's largest shareholders to understand their views on the buyback programme and the Company as a whole. The shareholders expressed their support for the buyback strategy.

Outcomes:

Based on the buyback being in the interest of the Company and shareholders, and the positive impact it would have on the NAV, the Board authorised the recommencement of the buyback programme. The programme is authorised in increments in order for it to be monitored by the Board against the Company's cash position, share price and investment pipeline.

During the year the Company bought back 5,682,459 shares which are currently held in treasury. The repurchase of shares has contributed to a NAV uplift of 0.2 pence per share since recommencement of the scheme in October 2022.

1. Alternative performance measure - refer below for definitions and calculation methodology.

Suppliers

Suppliers across the UK and Jersey who provide services to the Company.

Why engage

The Company's suppliers include third party service providers engaged to provide corporate or administration services, in addition to the investment management services provided by the Investment Manager. These services are critical to the ongoing operational performance of the Group.

How the Company engages

The Board has a close working relationship with all its advisers and regularly engages with all parties. The Management Engagement committee regularly monitors the performance and reviews the terms of each service contract annually. To ensure suppliers meet the Company's high level of conduct, all suppliers are required to confirm on an annual basis, in the form of a questionnaire, that they have adequate policies and procedures in place for ensuring business continuity planning; cyber security; and prevention of corruption and bribery.

For the year ended 31 December 2022, the questionnaire has been expanded to cover policies and procedures in relation to ESG, compliance with the General Data Protection Regulation and MAR, as well as a requirement by service providers to rate their own service and the conduct of other service providers.

This informs decision making at Board level in regard to the continuing appointment of service providers.

Post year end, the annual Management Engagement committee meeting was held where the committee reviewed the performance, and considered the continued appointment, of the Company's service providers. Refer below for further information.

The committee also worked closely with the Investment Manager on its resourcing and recruitment plans following the resignation of the lead fund manager, David Conlon.

In addition, the Board typically attends the offices of the Investment Manager at least once a year to perform an oversight review and consider matters such as strategy, portfolio performance and principal risks.

Borrowers

Owners of the Project Companies to which the Group advances loans.

Why engage

By engaging with borrowers and understanding their needs, the Group is able to offer bespoke lending solutions which reflect the contractual fundamentals and inherent risks of the underlying assets and cash flows. Borrower contact enables direct feedback and informs strategic decision making at Board level.

How the Company engages

The Investment Manager's designated portfolio monitoring team engages with borrowers on an ongoing basis. Engagement is in the form of regular interaction with the borrowers. Visits to projects in Dublin, London, Birmingham, Wigan and Coventry were undertaken by the origination and portfolio management teams.

The Investment Manager reports to the Board on asset performance on a quarterly basis. The regular monitoring of information and financial covenant obligations is also carried out to ensure compliance with financial covenants to ensure the early identification of potential issues.

The Board engages with the Investment Manager with regard to 'conflicted investments', where the Investment Manager or any shareholders, directors or employees of the Investment Manager are directly or indirectly interested in any entity or asset in relation to the investment.

Lender

Provider of the Company's credit facilities.

Why engage

The Company's lender, RBSI, provides a credit facility used in the making of investments in accordance with the investment policy, access to which creates an efficient method of investing capital and minimises the effect of cash drag.

How the Company engages

The day-to-day management of the credit facility is delegated to the Investment Manager, who engages with the lender to ensure that they remain fully informed on all relevant business of the Company. This high level of engagement helps to support the relationship with the lender.

The Investment Manager reports to the Board on a quarterly basis on current and future financing requirements, as well as the quantum and duration of the RCF. This information forms the basis of decision making at Board level. The Company's RCF is due to expire in August 2023 and includes an optional extension for an additional term of one year with lender approval.

The Company, through the Investment Manager, has commenced a review of its financing arrangements with the intention of extending the RCF in advance of the date of expiry as well as exploring alternatives should the RCF not be renewed. Further information on the RCF is given in notes 2.1 and 14 to the financial statements.

Government and regulators

Governmental organisations providing public services for society, or financial services regulators.

Why engage

Good governance and compliance with applicable regulations is vital in ensuring the continued success of the Company and the regimes within which it operates.

How the Company engages

The Board encourages openness and transparency and promotes proactive compliance with new regulation. The Company engages with local government and regulatory bodies at regular intervals and participates in focus groups and research projects where relevant.

The Company, through its Investment Manager and Administrator, files UK AIFM Regime and Jersey regulatory statistics on a quarterly basis and assists the JFSC in collecting data to conduct a national risk assessment of money laundering and terrorist financing threats to Jersey.

Government and regulatory policy informs strategic decision making at Board level with consideration given to the impact the Company has on the sector and vice versa.

Society

The Company positively impacts society through its investing activities, providing funding for assets which are integral to society.

Why engage

Through responsible investing the Company can ensure the long-term success of not only itself but also of the environments within which it operates. As part of the investment process, ESG due diligence is carried out by the Investment Manager to ensure that sustainability and impact on society is considered.

How the Company engages

Indirectly, the Company engages with society through its social infrastructure investing, providing funding for housing for vulnerable adults, student accommodation, care for the elderly, nurseries and urban regeneration.

The Company reports on the benefits to society through its normal methods of shareholder engagement. Further information can be found in the sustainability section above.

The Company has published an ESG policy and framework in line with good governance and social responsibility. The policy can be found on the Company's website.

RISK MANAGEMENT

The Board and the Investment Manager recognise that risk is inherent in the operation of the Group and are committed to effective risk management to protect and maximise shareholder value.

Risk management strategy and risk appetite

The Board has the ultimate responsibility for risk management and internal controls within the Company. The Board and the Investment Manager recognise that risk is inherent in the operation of the Group and are committed to effective risk management to protect and maximise shareholder value. When setting the Company's risk management strategy, the Board also considers the nature of the risks they are willing to take and the appetite they have for those risks to achieve the Company's strategic objective.

Risk management process

At least twice a year, the Board, with the assistance of the Risk committee, undertakes a robust assessment of the principal and emerging risks facing the Company, including those that might threaten its business model, future performance, solvency and liquidity.

The Board also reviews the effectiveness of the Company's risk management process and internal control systems. Refer to the Risk committee report below for further information. This review covers the strategic, investment, financial, operational and financial crime risks facing the Company, as well as any emerging risks.

During the year, the Board discussed with the Company's key service providers how their services comply with the Company's policies, procedures and the terms of the service agreements to mitigate these risks. These discussions are ongoing. All recommendations arising from the review to enhance the control framework will be evaluated by the relevant Board committees and appropriate

recommendations will be presented to the Board for its approval during 2023.

The Board will continue to assess these risks and will review the Company's procedures and service agreements to mitigate the principal risk of its reliance on its key service providers. In relation to the AIC Code, the Board is confident that the procedures that the Company has put in place are sufficient to ensure that the necessary monitoring of risks and controls was carried out throughout the year under review.

Role of the AIFM

The Investment Manager has been appointed as AIFM to the Company since September 2015. The AIFM is required to operate an effective and suitable risk management framework to allow the identification, monitoring and management of the risks to which the AIFM and the AIFs under its management are exposed.

The AIFM's permanent risk management function has a primary role alongside the Board in shaping the risk policy of the Company. In addition, it has responsibility for risk monitoring and risk measuring to ensure that the level of risk remains within the Company's risk profile and tolerance.

Principal risks and uncertainties

Principal uncertainties

The Board considers the principal uncertainties faced by the Company during the year to be as detailed below. As part of the review of the principal uncertainties, the Board has concluded that the uncertainties relating to the 'Covid-19 pandemic' and 'Brexit' are no longer considered as uncertainties as their impacts are addressed as part of the Company's normal course of business. In addition, the previous uncertainty relating to the 'Conflict in Ukraine' has been updated to be 'Geopolitical uncertainty', as detailed below.

Uncertainty 1: Geopolitical uncertainty

The Board considers extensive effects from geopolitical uncertainty seen in 2022 to be a principal uncertainty for the Company. The war in Ukraine has clouded the outlook for the global economy and exacerbated disruptions in supply chains, energy prices, market volatility and created inflationary pressures and investor unease. The Company is predominantly invested in the UK and has no investments in Ukraine, Russia or Belarus. Equally, no borrowers have been subject to sanctions imposed due to the war.

Principal risks

The Board considers the principal risks faced by the Company during the year, together with the potential effects, controls and mitigating factors, to be as detailed below. As part of the review of the principal risks, the Board has identified a new risk 'Reliance on third party service providers' which is included as part of 'Key resource risk' below.

1. Alternative performance measure - refer below for definitions and calculation methodology.

Emerging risks

Emerging risks include trends which are characterised by a high degree of uncertainty in terms of their occurrence, probability and their potential impact. As part of the Company's risk management processes, emerging risks are considered at the formal reviews of the Company's risks, described above and in the Risk committee report below.

During the year, the Board identified inflation as an emerging risk due to the potential impact on its borrowers. However, at the year end, the committee did not consider it to be an emerging risk as its impact is being addressed within specific risks already identified and managed.

ESG risks

The Board considers ESG risks, including those relating to climate change, to be a transverse risk and which are to be managed within the existing risk categories identified in the Company's risk register. To support the integration of these risks, into the Company's procedures, an ESG analysis was undertaken during the year to assess the impact of ESG on the Company's existing risk categories and any new categories that might emerge as a result. This assessment has led to clear actions to work towards over the next few years. Further details can be found above.

Furthermore, the Investment Manager has carried out a climate risk assessment for each underlying portfolio asset to assess the actual and potential impacts of climate-related risks and opportunities across the portfolio. Further information is given above. Based on the climate risk analysis undertaken, the Investment Manager does not currently propose to make any changes to financial forecasts due to climate risk.

Going concern and viability assessment

Assessment

The Directors have assessed the financial prospects of the Company for the foreseeable future, being a period of at least twelve months from the date these financial statements were approved, and made an assessment of the Company's ability to continue as a going concern.

The Investment Manager has prepared cash flow forecasts which were challenged and approved by the Directors, including a stressed cash flow downside scenario whereby the Company has to repay the RCF should it not be extended beyond the termination date, and the reasonableness of other available finance options including alternative finance facilities and the sale of specific assets.

The Directors are satisfied that the Company has the resources to continue in business for the foreseeable future and furthermore are not aware of any material uncertainties that may cast significant doubt upon the Company's ability to continue as a going concern. Refer to note 2.1 to the financial statements for further details on the assessment.

The Board regularly reviews the risks that it has identified that might threaten its strategy. The Board also assesses the Company's policies and procedures for monitoring, managing and mitigating its exposure to these risks. The Directors have carried out a robust assessment of each of the Company's risks, including its principal risks that would threaten its business model, future performance, solvency or liquidity, uncertainty, as detailed above and, through stress testing as described below, have also assessed the prospects of the Company over a longer period than the twelve months required by the going concern provision.

Stress testing

In order to analyse the effect of the principal risks and uncertainties on the Company's net cash flows, key financial ratios, viability and dividend cover, the Investment Manager has stress tested the Company's financial model by flexing a number of key assumptions used in order to model the impact of plausible scenarios, including:

- significant reduction of 25% of interest income received;

- borrower default probabilities by sector and recovery rates of 64%;

- cash requirements arising from maintaining FX hedges in a downside FX scenario, calculated at a 95% confidence level;

- significant increases in the Company's operating expenses and debt financing costs of 25% and increase of 2.00% on SONIA respectively;

- a combined scenario with a combination of the factors described above;

- the RCF extension is not approved by the Company's lender and the facility becomes payable in full in August 2023; and

- impact on the portfolio of downside stress tests on a sector-by-sector basis.

The Investment Manager believes that the above scenarios represent a robust sensitivity analysis. The Company's principal activity is investing in loans to third parties supported by the value of physical assets and contracted cash flows. The Company is reliant on the performance of interest and principal repayment obligations as part of these loans in order to meet its overheads, service its borrowings and to pay the discretionary dividends.

Time period

The Board has determined that a five year period constitutes an appropriate period over which to provide its viability statement. The weighted average term of the loans within the investment portfolio is six years and in the view of the Board and the Investment Manager, financial forecasts that support the analysis may be subject to further capital raising for which the impact beyond a five year term is difficult to assess.

In addition, the extent to which macro-economic, political, social, technological and regulatory changes beyond a five year term may have a plausible impact on the Company are difficult to forecast. The assessment involved an evaluation of the potential impact on the Company of these risks occurring through the use of stress testing as detailed above.

Conclusion

Based on this assessment and the stress testing performed on the Company's prospects, the Directors confirm that they have a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the five year period of their assessment to 31 December 2027.

Approval of strategic report

The strategic report has been approved by the Board and is signed on its behalf by the Chairman.

Alex Ohlsson

Chairman

13 April 2023

BOARD OF DIRECTORS

The Directors are responsible for the effective stewardship of the Company's activities in order to ensure its long-term success in the interest of stakeholders.

Alex Ohlsson

Chairman

Alex Ohlsson, a Jersey resident, is the managing partner of the law firm Carey Olsen, and is recognised as an expert in corporate and finance law in Jersey with a particular focus on international real estate finance and structures. Mr Ohlsson joined Carey Olsen in 1991, became a Jersey solicitor in 1994 and an Advocate of the Royal Court of Jersey and a partner of Carey Olsen in 1995. He was educated at Queens' College, Cambridge, where he obtained an MA (Hons) in Law. Mr Ohlsson served as the independent chairman of the States of Jersey's audit committee from 2009 until 2018. He is an advisory board member of Jersey Finance, Jersey's financial services promotional body. He acts as a non‑executive director of a number of companies. He is also chairman of the LSE Main Market listed company Foresight Solar Fund Limited.

Skills and experience:

Substantial board level and legal experience in the corporate and finance sectors in Jersey.

Date of appointment:

14 September 2015

Joanna Dentskevich

Senior Independent Director and chair of the Risk committee

Joanna Dentskevich, a Jersey resident, has over 30 years of risk,

finance and investment banking experience gained in leading global banks worldwide, alternative investments and the offshore funds industry. Previously, she was a director at Morgan Stanley heading up its Global Customer Valuation Group, a director of risk at Deutsche Bank and chief risk officer of a London‑based hedge fund. Mrs Dentskevich has a BSc (Hons) in Maths and Accounting. Mrs Dentskevich is also chair of the board of the LSE listed company EJF Investments Limited.

Skills and experience:

Substantial relevant risk, finance and board level experience in the investment sector.

Date of appointment:

7 September 2015

Colin Huelin FCA

Chair of the Audit committee

Colin Huelin, a Jersey resident, graduated in mechanical engineering with a first class honours BSc degree and Diploma at Southampton University in June 1982. He completed his graduate management development and monitored professional development scheme with Shell UK and the Institute of Mechanical Engineers in 1986. Mr Huelin qualified as a chartered accountant with Ernst & Young in 1989 and was appointed finance director for Computer Patent Annuities ("CPA") in February 1990. He was appointed CEO for CPA in 1995. In November 1998, he joined Abbey National Offshore as head of financial planning, was promoted to finance director in 2003 and then managing director of Santander Private Banking in Jersey in November 2007, a position he held until 31 May 2015.

Skills and experience:

Substantial board level and financial experience in the banking and private sectors in Jersey.

Date of appointment:

7 September 2015

Marykay Fuller

Chair of the Management Engagement committee and the Remuneration and Nomination committee

Marykay Fuller, a UK resident, is a banking and finance professional with 30 years' experience in debt and equity markets, working with a broad range of businesses across a variety of jurisdictions including the UK, US, Europe, South America and Asia. Most recently, she was a senior deal advisory partner at KPMG LLP where she also represented the firm on the board of the trade group, British American Business. Ms Fuller is currently the chair of Intu Milton Keynes Limited and the senior independent director of the UK Civil Aviation Authority, where she is a member of the audit committee and sits on the CAA International management board. She is the chair of the Air Travel Trust, is a non‑executive director at TDBico, the ultimate parent of Tilbury Douglas, and serves on the Alumni Advisory Board of Heinz College, Carnegie Mellon University in the US.

Skills and experience:

Substantial business and debt experience across a variety of jurisdictions.

Date of appointment:

6 November 2019

THE INVESTMENT MANAGER

The Board of Directors has appointed the Investment Manager to provide day-to-day investment management services to the Group.

Investment team

Joanne Fisk

Director

Joanne Fisk is a director of the Investment Manager and acts as lead co‑fund manager for the Company.

Background:

Ms Fisk has worked on the Company since 2017 and has a depth of experience, including playing a key role in identifying investments, leading negotiations, liaising with borrowers and overseeing portfolio developments. Prior to joining the Investment Manager in 2017, Ms Fisk qualified as a lawyer in the project finance team of UK‑based law firm Burges Salmon, where she focused on structuring and financing of infrastructure projects.

Skills and experience:

Experience in a wide range of sectors including residential development, student accommodation, infrastructure, renewables, care homes and football finance.

Philip Kent

Director

Philip Kent is a director of the Investment Manager and acts as co‑fund manager for the Company.

Background:

Mr Kent joined Gravis from Foresight Group, where he was responsible for investments in the waste and renewables sectors, including large waste wood combustion projects and a pipeline of anaerobic digestion projects across the UK. He has been involved in the energy sector for over ten years, working initially as a consultant within PA Consulting's energy practice, focusing on energy markets and energy asset valuations. In 2008, he moved to Gazprom Marketing and Trading, working in risk management across a number of commodities before moving into the clean energy team.

Skills and experience:

Extensive experience in the infrastructure sector, including energy markets, asset valuations and renewables transactions.

Financial and corporate advisory

Saira Johnston

Chief financial officer

Chloe Marlow

Head of corporate reporting

Sarah Bowe

Compliance and risk officer

William Parry-Jones

Fund financial controller

Portfolio administration

Luther Ward-Faint

Portfolio manager

Martie Chawla

Assistant fund financial controller

Kate Arnold

Portfolio manager

Justyna Kolarovic

Portfolio administrator

BOARD LEADERSHIP AND PURPOSE

Corporate governance statement

I am pleased to present the Company's corporate governance statement for the year ended 31 December 2022.

Introduction from the Chairman

In this corporate governance statement, the Company reports on its compliance with the AIC Code, sets out how the Board and its committees have operated during the year and describes how the Board exercises effective stewardship over the Company's activities for the benefit of its members as a whole.

The Board recognises the importance of a strong corporate governance culture and has established a framework for corporate governance which it considers to be appropriate to the business of the Company. All Directors contribute to Board discussions and debates. The Board believes in providing as much transparency for shareholders as is reasonably possible.

The AIC Code

As a member of the AIC, the Company reports against the principles and provisions of the AIC Code.

The Board has considered the principles and provisions of the AIC Code. The AIC Code addresses the principles and provisions set out in the UK Code, as well as setting out additional provisions on issues that are of specific relevance to the Company. The AIC Code can be found on the AIC website at www.theaic.co.uk. The AIC Code includes an explanation of how it adapts the principles and provisions set out in the UK Code to make them relevant for investment companies.

The Board considers that reporting against the principles and provisions of the AIC Code, which has been endorsed by the FRC and supported by the JFSC, provides information to shareholders.

Statement of compliance with the AIC Code

The Board has made the appropriate disclosures in this report to ensure that the Company meets its continuing obligations. It should be noted that, as an investment company, most of the Company's day‑to‑day responsibilities are delegated to third party service providers. The Company has no employees and the Directors are all non‑executive, therefore not all of the provisions of the UK Code are directly applicable to the Company. The Board considers that the Company has complied with the principles and provisions of the AIC Code.

The Board

At 31 December 2022, the Board comprised four Directors, all of whom are non‑executive and are considered independent. Biographical details of the Directors are shown above.

Under the leadership of the Chairman, the Board is responsible for the long‑term success of the Company. It provides overall leadership, sets the strategic aims of the Company and ensures that the necessary resources are in place for the Company to meet its objectives and fulfil its obligations to shareholders within a framework of high standards of corporate governance and effective internal controls. The Board has overall responsibility for the Company's investment policy, investment strategy and activities, including the review of investment activity and performance and internal controls of the Investment Manager.

Matters reserved for the Board

The Board has approved a formal schedule of matters reserved for its approval which is available on the Company's website and upon request from the Company Secretary. The principal matters considered by the Board during the year included:

- the declaration of dividends;

- share buybacks;

- the interim and annual financial statements;

- the Company's annual expenditure budget;

- conflicted investments;

- the resignation of the fund manager;

- the Co‑living group loan (further details above);

- ESG matters; and

- recommendations from its committees.

Culture and purpose

The Chairman, Alex Ohlsson, leads the Board and is responsible for its overall effectiveness in directing the Company. He demonstrates objective judgement, promotes a culture of openness and debate and facilitates constructive Board relations and the effective contribution of all Directors. In liaison with the Company Secretary, he ensures that the Directors receive accurate, timely and clear information. The Directors are required to act with integrity, lead by example and promote this culture within the Company.

The Board seeks to ensure the alignment of its purpose, values and strategy with this culture of openness, debate and integrity through ongoing dialogue and engagement with its service providers, principally the Investment Manager. The culture of the Board is considered as part of the annual performance evaluation process which is undertaken by each Director. The culture of the Company's service providers, including their policies, practices and behaviour, is considered by the Board as a whole during the annual review of the performance and continuing appointment of all service providers.

DIVISION OF RESPONSIBILITIES

The Board is responsible for the effective stewardship of the Company's affairs, including corporate strategy, corporate governance, risk management and overall investment policy.

The terms of reference of the Board committees can be found on the Company's website.

Chairman and Senior Independent Director

The Chairman, Alex Ohlsson, is deemed by his fellow independent Board members to be independent in character and judgement and free of any conflicts of interest.

He considers himself to have sufficient time to spend on the affairs of the Company. He has no significant commitments other than those disclosed in his biography above. The Chairman's independence has previously been noted by Institutional Shareholder. Services, a proxy adviser which publishes voting recommendations for its clients in respect of listed issuers, in their report for the Company's AGM, due to his position as managing partner of Carey Olsen, the Company's advisers on Jersey law. The relationship between the Company and Carey Olsen is not material in nature and is not considered to present a conflict of interest. The fees paid to Carey Olsen in the financial year ended 31 December 2022 represented 0.03% of the total expenses of the Company. Furthermore, the Company and Carey Olsen, a firm of over 50 partners, maintain procedures to ensure that the Chairman has no involvement in either the decisions concerning the engagement of Carey Olsen or the provision of legal services to the Company.

Joanna Dentskevich is Senior Independent Director of the Company. She acts as a sounding board for the Chairman, meets with major shareholders as appropriate, provides a channel for any shareholder concerns regarding the Chairman and takes the lead in the annual evaluation of the Chairman by the Directors.

In the event the Company experiences a period of stress, the Senior Independent Director would work with the Chairman, the other Directors and shareholders to resolve any issues.

A schedule of responsibilities of the Chairman and the Senior Independent Director is available on the Company's website.

Committees

At the year end, the structure included an Audit committee, a Risk committee, a Management Engagement committee and a Remuneration and Nomination committee. The terms of reference for each of the committees are available on the Company's website or upon request from the Company Secretary.

Audit committee

The membership and activities of the Audit committee are described in its report below.

Risk committee

The membership and activities of the Risk committee are described in its report below.

Management Engagement committee

The Management Engagement committee comprises all Directors. It meets at least once a year to consider the performance of the Company's key service providers, including the Investment Manager, the terms of their engagement, remuneration and their continued appointment.

Following the committee's assessment of the Investment Manager and the third party service providers whom the committee independently evaluates, their continued appointment on the terms agreed was considered to be in the best interest of shareholders as a whole. Thus, it was recommended to, and approved by, the Board that the Investment Manager and the third party service providers be retained.

Remuneration and Nomination committee

The membership and activities of the Remuneration and Nomination committee are described in its report below.

Meetings

The Board holds meetings on a quarterly basis and additional meetings are held when necessary. The number of scheduled meetings of the Board and committees held during the year and the attendance of individual Directors are shown below:

During the year, six additional Board meetings were held. These meetings were in respect of:

- share buybacks;

- Jersey compliance matters;

- the Co‑living group loan;

- approval of the half‑yearly and annual financial statements; and

- conflicted investments.

The Directors also held an annual strategy meeting with the Investment Manager in November 2022, by video conference.

Directors are encouraged when they are unable to attend a meeting to give the chair their views and comments on matters to be discussed, in advance. In addition to their meeting commitments, the non‑executive Directors also liaise with the Investment Manager whenever required and there is regular contact outside the Board meeting schedule.

At each Board and committee meeting, the Directors follow a formal agenda, circulated in advance by the Company Secretary, which may include a review of the Group's investments and associated matters such as gearing, dividend policy, asset allocation, risks, marketing and investor relations, economic and sector issues, regulatory changes and corporate governance best practice. The Company's service providers also provide the Board with relevant information to support each formal agenda.

The Board also considers the Company's investment policy, objective and strategy at these meetings.

Company Secretary

The Board has access to the Company Secretary to advise on governance and day‑to‑day administrative matters. The Company Secretary is also responsible to the Board for ensuring the timely delivery of the information and reports which the Directors require and that the statutory obligations of the Company are met.

Market Abuse Regulation

Following the implementation of MAR on 3 July 2016, the Board formally adopted revised procedures in relation to the management, identification and disclosure of inside information and share dealing in accordance with MAR.

Anti-bribery and tax evasion

The Company has developed appropriate anti‑bribery policies and procedures. The Company has a zero‑tolerance policy towards bribery and is committed to carry out its business fairly, honestly and openly.

The Company does not tolerate tax evasion in any of its forms in its business. The Company complies with the relevant UK law and regulation in relation to the prevention of facilitation of tax evasion and supports efforts to eliminate the facilitation of tax evasion worldwide. The Company works to make sure its stakeholders share this commitment.

UK AIFM Regime

The Company is classed as an externally managed AIF under the UK AIFM Regime. The Board has appointed the Investment Manager as the authorised AIFM to the Company and Apex Financial Services (Corporate) Limited as the Company's Depositary under the UK AIFM Regime.

AIFM remuneration

The Investment Manager is authorised as an AIFM by the FCA under the UK AIFM Regime. The Company has provided disclosures on its website incorporating the requirements of the UK AIFM Regime.

The total remuneration paid to the Investment Manager by the Company is disclosed in note 18 to the financial statements.

MiFID II

The ordinary shares and C shares (while in issue) of the Company are considered as 'non‑complex' in accordance with MiFID II.

Non-mainstream pooled investments

The Board notes the rules of the FCA on the promotion of non‑mainstream pooled investments.

The Board confirms that it conducts the Company's affairs, and intends to continue to conduct its affairs, so that the Company's shares will be 'excluded securities' under the FCA's rules. This is on the basis that the Company would qualify for approval as an investment trust by the Commissioners for HM Revenue and Customs under Sections 1158 and 1159 of the Corporation Tax Act 2010 if resident and listed in the UK. Therefore, the Company's shares will not amount to non‑mainstream pooled investments. Accordingly, promotion of the Company's shares will not be subject to the FCA's restriction on the promotion of non‑mainstream pooled investments.

COMPOSITION, SUCCESSION AND EVALUATION

REMUNERATION AND NOMINATION COMMITTEE REPORT

I am pleased to present the Remuneration and Nomination committee report for the year ended 31 December 2022.

Marykay Fuller

Chair of the Remuneration and Nomination committee

Committee

At 31 December 2022, the committee comprised all four Directors of the Company, all of whom are considered independent.

The committee met three times during the year. A copy of the terms of reference within which the committee operates is available on the Company's website or from the Company Secretary upon request.

Board composition

The Board believes that it and its committees have an appropriate composition and blend of skills, experience, independence and diversity of backgrounds to discharge their duties and responsibilities effectively. The Board is of the view that no one individual or small group dominates decision making. The Board, via its Remuneration and Nomination committee, keeps its membership, and that of its committees, under review to ensure that an acceptable balance is maintained, and that the collective skills and experience of its members continue to be refreshed.

Directors' attendance at all committee meetings held during the year and their relevant experience is detailed above.

Induction of new Directors and training

The Chairman, in conjunction with the Company Secretary, ensures that all new Directors receive a full, formal and tailored induction on joining. An induction pack is provided to new Directors containing relevant information about the Company, its constitutional documents, terms of reference, policies, processes and procedures. New Directors meet with relevant persons at the Investment Manager and the Chairman provides guidance and mentoring as appropriate. A programme of induction training is agreed with each new Director.

The Directors are encouraged to keep up to date and attend training courses on relevant matters. The Company has a continuing professional development policy which is reviewed annually.

Independence

The committee has reviewed the conflicts, relationships, other positions and tenure of all the Board members and continues to be satisfied that no material interests exist which would materially impact the ability of each Director to exercise independent judgement.

Accordingly, the Board considers all Directors on the Board to be independent in character and judgement and entirely independent of the Investment Manager. The Directors' conflicts of interest are detailed in note 18 to the financial statements.

Tenure

The Board's policy regarding tenure of service, including in respect of the Chairman, is that any decisions regarding tenure will balance the need to provide and maintain continuity, knowledge, experience and independence, against the need to periodically refresh the Board composition in order to maintain an appropriate mix of the required skills, experience, age and length of service.

The appointment date of each Director is shown above.

Performance evaluation

The Directors are aware and believe that they need to continually monitor and improve performance and recognise that regular Board evaluation provides a valuable feedback mechanism for improving Board effectiveness.

In line with the recommendations of the AIC Code, an external evaluation is carried out every three years with intervening years seeing internal evaluations by means of a questionnaire. The questionnaire is specifically designed to assess the strengths and independence of the Board, the Chairman and the individual Directors, the performance and focus of Board and committee meetings, the need for additional information required to facilitate Board discussions and each Director's continuing capacity.

Due to the circumstances around the Covid‑19 pandemic during 2021, such as restrictions on travel and gatherings, the external evaluation was postponed and undertaken in 2022. The committee engaged Stephenson Executive Search Limited, a specialist consultancy firm independent of the Company and its Investment Manager, to carry out the external evaluation.

The results of the external evaluation were presented to the Remuneration and Nomination committee and subsequently to the Board, with the key recommendation being a focus on the Company's succession plan. Taking into account best practice in accordance with the AIC Code, and the independent Board review, the Company will create a succession plan in 2023 for the current Board rotation with the anticipation of that plan commencing in 2024.

Succession

The Board does not consider that lengthy service in itself necessarily undermines a Director's independence nor that each Director, including the Chairman, should serve for a finite fixed period. However, based on the principles of the AIC Code, the committee reviewed and recommended to the Board, subject to annual re‑election, the staged rotation of Directors to ensure the continuity and stability of experience remains.

Diversity

Diversity is an important consideration in ensuring that the Board and its committees have the right balance of skills, experience, independence and knowledge necessary to discharge their responsibilities. The right blend of perspectives is critical to ensuring an effective board and a successful company.

Board diversity, including, but not limited to, gender, ethnicity, professional and industry specific knowledge and expertise, understanding of geographic markets and different cultures, is taken into account when evaluating the skills, knowledge and experience desirable to fill vacancies on the Board as and when they arise.

Board appointments are made based on merit and calibre with the most appropriate candidate, who is the best fit for the Company, being nominated for appointment and as a result no measurable targets in relation to Board diversity have been set. At the date of this report, the Board consists of two males and two females.

The committee believes the Directors provide, individually and collectively, the breadth of skill and experience to manage the Company.

The committee notes the new recommendations of the FTSE Women Leaders Review and the Parker Review on gender and diversity, as well as the FCA rules on diversity and inclusion on company boards. Namely, that from accounting periods starting on or after 1 April 2022:

a) at least 40% of individuals on the Board to be women;

b) at least one senior Board position to be held by a woman; and

c) at least one individual on the Board to be from a minority ethnic background.

The committee continues to develop its succession plan in line with these recommendations, noting that both (a) and (b) are currently satisfied. There are two female Directors on the Board and one of these, Joanna Dentskevich, holds the role of Senior Independent Director.

As a Jersey resident company, the Board must comprise at least two Jersey resident Directors and, for tax purposes, each Board meeting should be held with a majority of Directors present in Jersey. This affects the Company's ability to source ethnically diverse Directors. The 2021 census of the population of Jersey showed that of a population of 103,297, only 4.1% were from a minority ethnic background, compared to England and Wales which had a population of 66.8 million in 20191, of which 15.2% were from a minority ethnic background.

In addition, the 2021/22 non‑executive director remuneration survey conducted by PwC Channel Islands showed that there is only a single non‑executive director identified as being a member of an ethnic minority out of 120 non‑executive directors who participated in the survey and representing 1,525 directorships.

The Board notes that the votes against the re‑election of Ms Fuller at the 2022 AGM were based on there being no Director on the Board from a minority ethnic background. Together with the succession planning referenced in this report plus the geographical restrictions noted above, the Company will include a diversity objective in its succession planning.

1. 2019 is the latest ethnic data to be released for England and Wales.

In accordance with Listing Rule 9 Annex 2.1, the below tables, in the prescribed format, show the gender and ethnic background of the Directors.

Gender identity¹

Ethnic background¹

The data in the above tables was collected through self‑reporting by the Directors.

1. The Company is a closed‑ended investment company with no employees hence data for executive management in Listing Rule 9 Annex 2.1 is not applicable.

Overboarding

The Directors consider that as an investment company, the Company demands less time commitment than would be required of a non‑executive director of an operating company. The Directors also believe that a formulaic approach to assessing whether a director is able to effectively discharge their duties is not appropriate given the nature of the Company and directorships.

Prior to appointment to the Board, a Director must disclose existing significant commitments and confirm that they are able to allocate sufficient time to the business of the Company. In addition, a Director must consult with the Chairman or Senior Independent Director prior to taking on any listed company, conflicted, time‑consuming or otherwise material board appointment and promptly notify the Company Secretary of any new board appointments which they take on.

On an annual basis, through the Board's internal evaluation, as described above, each Director's continuing ability to meet the time requirements of the role is assessed by considering, amongst other things, their attendance at Board, committee and other ad hoc meetings and events of the Company held during the year as well as the nature and complexity of other, both public and private, roles held.

Directors' attendance at all Board and committee meetings held during the year is detailed above. None of the Directors hold an executive position of a public company or chair a public operating company.

The committee believes all the Directors have sufficient time to meet their Board responsibilities.

Re-election

Beyond the requirements of the Articles, and in accordance with the AIC Code, the Board has agreed a policy whereby all Directors will seek annual re‑election at the Company's AGM. Any Director not re‑elected would resign in accordance with applicable Jersey regulatory requirements.

Accordingly, all of the Directors who held office throughout the year will offer themselves for re‑election at the AGM.

Having considered the Directors' performance and the results of the external evaluation, the Board believes that it continues to be effective and the Directors bring extensive knowledge and commercial experience together with demonstrating a range of business, financial and asset management skills. The Board therefore believes that it would be in the Company's best interests for the Directors to be proposed for re‑election at the AGM given their material level of contribution and commitment to the role and, hence, recommends that shareholders vote in favour of each Director's proposed re‑election.

Remuneration

The Directors' remuneration report below details the remuneration policy and the Directors' remuneration during the year.

Marykay Fuller

Chair of the Remuneration and Nomination committee

13 April 2023

AUDIT, RISK AND INTERNAL CONTROL

AUDIT COMMITTEE REPORT

I am pleased to present the Audit committee report for the year ended 31 December 2022.

Colin Huelin FCA

Chair of the Audit committee

Statement from the chair

The Board is supported by the Audit committee, with written terms of reference which are available on the Company's website or on request from the Company Secretary. The committee's primary role is to monitor the integrity of the Company's financial reporting to ensure it is fair, balanced and understandable and provides the information necessary for shareholders and other users to assess the Company's position and performance, business model and strategy.

The committee is responsible for monitoring internal controls, in conjunction with the Risk committee, and the external audit process, which includes making recommendations to the Board in respect of the appointment, re‑appointment and remuneration of the Auditor.

Composition and meetings

At 31 December 2022, the committee comprised Colin Huelin FCA (Chair), Joanna Dentskevich and Marykay Fuller. The qualifications and experience of the Audit committee members are detailed above.

The Board has agreed that the committee chair, Colin Huelin, a chartered accountant, has recent and relevant financial experience as required by the provisions of the AIC Code.

The committee formally met four times during the year ended 31 December 2022. Details of attendance at meetings held during the year are set out above.

Although not members of the committee, the Company Secretary, the Investment Manager, the lead audit partner and representatives from the Company's Auditor are invited to attend committee meetings. The Auditor has the opportunity to meet with the committee without representatives of the Investment Manager being present.

The Auditor is not present when their performance and remuneration is discussed.

Financial reporting

The committee considered the requirements of the UK Companies Act 2006 (Strategic Report and Directors' Report) Regulations 2013 with which it is complying voluntarily, in line with best practice reporting. The committee specifically reviewed the Company's annual report and financial statements to conclude whether it is fair, balanced, understandable, comprehensive and consistent with prior year reporting and how the Board assesses the performance of the Company's business during the financial year, as required under the AIC Code.

As part of this review, the committee considered if the annual report and financial statements provided the information necessary to shareholders to assess the Company's performance, strategy and business model. It reviewed the description of the Company's key performance indicators, alternative performance measures, as well as reviewing and updating the governance section of the annual report. As part of this review, and in conjunction with the Risk committee, the committee considered the sustainability disclosures above to ensure that they reflect a fair and balanced view of the impact of climate change on the performance of the Company's business.

The committee presented its recommendations to the Board and the Board concluded that it considered the annual report and financial statements, taken as a whole, to be fair, balanced and understandable and to provide the information necessary for the shareholders to assess the Company's position and performance, business model and strategy.

In addition to the above matters, the committee's work was focused on the following areas:

- the significant accounting matters to recommend to the Board, and other narrative disclosures in the half‑yearly and annual financial statements of the Company, including matters of judgement in relation to the valuation of financial assets at fair value through profit or loss and an assessment of the methodology. The committee discussed these matters with the Valuation Agent, the Investment Manager and the Auditor;

- the effectiveness of the Company's internal control environment;

- challenge to the results of the Investment Manager's stress tests for the purpose of the going concern and viability statements and, in conjunction with the Risk committee, considered the going concern disclosures above and in note 2.1 to the financial statements;

- overseeing the Company's relations with its Auditor, including assessing the conduct and effectiveness of the audit process and the Auditor's independence and objectivity and recommending the Auditor's re‑appointment and approval of the Auditor's fees; and

- the committee's own terms of reference.

The committee has direct access to the Auditor and to the key senior staff of the Investment Manager and reports its findings and recommendations to the Board, which retains the ultimate responsibility for the financial statements of the Company. All

recommendations during the year were accepted by the Board.

Significant issues considered

After discussions with the Investment Manager and the Auditor, the committee determined that the key risks of material misstatement of the Company's financial statements are related to the fair valuation of the investments as detailed below.

Other matters considered during the year

Accounting policies, narrative reporting, critical accounting estimates and key judgements

The committee reviewed the narrative reporting, accounting policies and note 2.2 to the financial statements that relate to critical accounting estimates and key judgements and confirmed that they are appropriate for the Company.

Internal control

The committee's monitoring and review of the internal controls of the Company was informed as follows:

Going concern and viability statement

The committee reviewed the Investment Manager's analysis, including the terms of the RCF agreement that provide for an optional extension for an additional term of one year which is subject to lender approval. Under the terms of the RCF, the Company is required to give written notice of extension no earlier than 60 days prior (June 2023) and no later than 30 days prior (July 2023) to the termination date on 21 August 2023. The committee acknowledged that the extension of the RCF is at the discretion of RBSI, that the RCF represents leverage of 7.2% of total assets at the year end, and that the Company has met and continues to be able to meet all financial commitments and covenants of the RCF. In addition, the Committee's review challenged the Investment Manager's cash flow forecasts, including a stressed cash flow downside scenario whereby the Company has to repay the RCF should it not be extended beyond the termination date. The reasonableness of other available finance options including alternative finance facilities and the sale of specific assets were also considered. On this basis, the committee is satisfied that the Company can continue to meet its liabilities as they fall due within a period of at least the next twelve months from the date of approval of the financial statements and recommended to the Board that the going concern basis of preparation of the financial statements is appropriate. Whilst there is some uncertainty with regards to the extension of the RCF, the committee concluded that the above options are sufficient to mitigate the potential liquidity risk which may be faced by the Company.

The committee also reviewed the Investment Manager's five year stress test analyses for the purpose of assessing the Company's viability. This review challenged the assumptions applied as well as being satisfied with the rationale for selecting the duration of five years for the viability period.

In addition, the committee considered how the Investment Manager had assessed the impact of climate risk across the physical assets in the portfolio and the impact on income generation as described above.

The committee concluded that the Investment Manager's assessment, that the Company's exposure to climate risk is low, is reasonable. This assessment will continue to be monitored as the Investment Manager's climate risk assessment is developed.

Further detail on the basis of the going concern and viability assessment by the Directors is set out in the strategic report above and in notes 2.1 to the financial statements.

External audit

The committee met with the Auditor in December 2022 to review, challenge and agree their audit plan, and in particular their approach to the valuation of investments.

Independence and objectivity of the Auditor

PwC has been the Auditor of the Company since its first annual reporting period in 2016. Lisa McClure is the current audit partner for the financial year ended 31 December 2022. There are no contractual obligations restricting the choice of auditor and the Company will consider placing the audit service contract out for tender at least every ten years, being no later than for the financial year ending 31 December 2026.

To fulfil its responsibility regarding the independence and objectivity of the Auditor, the Audit committee considered:

- a report from the Auditor describing its arrangements for maintaining independence; and

- the extent and nature of the non‑audit services provided by the Auditor.

The committee has agreed a policy whereby, in order to avoid any potential impact on the independence and objectivity of the Auditor, the Company and its subsidiaries will not seek to obtain any non‑audit services from the Auditor, with the exception of the review of the half‑ yearly report and financial statements which is included in the FRC's whitelist of permitted non‑audit services.

External audit results

The committee met with the Auditor in April 2023 to discuss their audit report and opinion, after the conclusion of their audit.

The Auditor explained the results of their audit and confirmed that there were no adjustments proposed that were material in the context of the financial statements as a whole.

Effectiveness of the external audit

The committee reviewed the effectiveness of the external audit process during the year, considering the performance, objectivity, independence and relevant experience of the Auditor. The scope of the review included an assessment of feedback from the key service providers and also the Auditor's Transparency Report 2022. Following this review, the committee concluded that the audit was effective.

Re‑appointment of the Auditor

The committee continues to be satisfied with the performance of the Auditor and has recommended the re‑appointment of PwC as the Company's Auditor at the 2023 AGM.

The following table summarises the remuneration paid to the Auditor for audit and non‑audit services during the year ended 31 December 2022:

Colin Huelin FCA

Chair of the Audit committee

13 April 2023

RISK COMMITTEE REPORT

I am pleased to present the Risk committee report for the year ended 31 December 2022.

Joanna Dentskevich

Chair of the Risk committee

Statement from the chair

The purpose of the Risk committee is to assist the Board in its oversight and assessment of the risks that the Company is exposed to, its risk appetite, the effectiveness of the risk management framework and ensuring the external reporting of the Company gives a fair, balanced and understandable reflection of risk having due regard to the Company's investment objective and policy.

Composition and meetings

The committee comprises all four Directors of the Company, all of whom are considered independent and through their relevant financial experience provide effective challenge. The committee met formally five times during the year. Details of attendance at meetings held during the year are set out above.

Responsibilities

The committee's key responsibilities, amongst others, are to:

- review the risks, including financial crime and ESG risks, the Company is exposed to and consider their likelihood and impact if they were to materialise;

- review, in conjunction with the Audit committee, the effectiveness of the internal controls;

- review the risk management framework;

- carry out a robust assessment of the principal and emerging risks facing the Company, including those that would threaten its business model, future performance, solvency or liquidity and ability to deliver its strategy;

- review the report of the risk officer of the AIFM prior to consideration of the principal and emerging risks and the principal uncertainties to be included in the half‑yearly and annual reports and financial statements; and

- include in the annual report of the Company a description of the principal and emerging risks along with explanations on how they are being managed or mitigated and any change from previous years.

A copy of the terms of reference within which the committee operates is available on the Company's website or from the Company Secretary upon request.

Risk management and monitoring

The Company has in place a risk register to manage and track identified risks and uncertainties and potential emerging risks that the committee has identified the Company to be exposed to. For each risk, the committee considers, inter alia, their impact on the Company achieving its investment objective along with the nature and extent of the risk, their mitigants and any driving factors which may increase the risk.

The level of residual risk determined as part of this analysis assists the Board (on the committee's recommendation) to determine

whether it is within the Company's risk appetite and any actions required.

During the year, the committee carried out a review of the Company's Money Laundering and Terrorism Financing risk assessment to include all aspects of financial crime.

Both the risk register and the financial crime risk assessment are reviewed semi‑annually in order to support the committee's assessment of the principal risks and uncertainties and emerging risks that the Company reports in the half‑yearly report and annual report.

To support the integration of ESG risks, including that of climate risk, into the Company's procedures, an ESG analysis was undertaken during the year to assess the impact of ESG on the Company's existing risk categories and any new categories that might emerge as a result. This assessment has led to clear actions to work towards over the next few years. Further details can be found above.

As a result of the war in Ukraine, the Company was required to report to the JFSC regarding any potential exposure to Russia, Belarus or Ukraine. The Company is predominantly invested in the UK and has no investments in Ukraine, Russia or Belarus. Equally, no borrowers have been subject to sanctions imposed due to the war.

Details of the Company's risk management framework, including the role of the AIFM, are set out above.

Principal risks and uncertainties

Post year end, the Risk committee met, with the Investment Manager present, to review and recommend for approval by the Board the principal risks and uncertainties of the Company. As a result of this review, the committee recommended to the Board a new principal risk, 'Reliance on third party service providers'. In addition, as a result of geopolitical and macro‑economic pressures on interest rates, inflation and growth, the committee recommended noted increases to the residual risks at the year end for the principal risks relating to credit, economic, key resource and execution.

The committee also recommended that the uncertainties relating to Covid‑19 and Brexit no longer be considered as uncertainties as they are now addressed as part of the Company's normal course of business and that the principal uncertainty of the conflict in Ukraine be combined in a new principal uncertainty of geopolitical uncertainty.

Further details can be found above.

Emerging risks and uncertainties

During the year, the Board identified inflation as an emerging risk due to the potential impact on its borrowers. However, at the year end, the committee did not consider it to be an emerging risk as its impact is being addressed within specific risks already identified and managed.

Joanna Dentskevich

Chair of the Risk committee

13 April 2023

REMUNERATION

DIRECTORS' REMUNERATION REPORT

I am pleased to present the Directors' remuneration report for the year ended 31 December 2022.

Marykay Fuller

Chair of the Remuneration

The Directors' remuneration report provides details on remuneration in the year. Although it is not a requirement under Jersey Company Law to have the Directors' remuneration report or the Directors' remuneration policy approved by shareholders, the Board believes that as a company whose shares are admitted to trading on the LSE, it is good practice for it to do so.

The Directors' remuneration report will be put to a shareholder vote every year and the Directors' remuneration policy will be put to a shareholder vote at least once every three years and in any year if there is to be a change in the policy.

As a result of the succession plan recommendations arising from the external Board evaluation, the Company anticipates the Board could have up to six members during 2024 as new Board members join and existing Board members rotate off.

As a result, the Directors are recommending an increase to the annual cap on Directors' remuneration from £300,000 to £335,000 to provide sufficient headroom during this succession period. Therefore, an ordinary resolution will be put to shareholders at the forthcoming AGM to approve the updated Directors' remuneration policy in accordance with the Articles.

This report is not subject to audit.

Voting at AGM

The Directors' remuneration report for the year ended 31 December 2021 and the Directors' remuneration policy were approved by shareholders at the AGM held on 17 May 2022. The votes cast by proxy were as follows:

Performance of the Company

The Board is responsible for the Company's investment strategy and performance. The management of the Group's investment portfolio is delegated to the Investment Manager through the investment management agreement, as referred to in note 18 to the financial statements.

The tables below illustrate the total shareholder return1 for a holding in the Company's shares as compared to the GBP Corporate Bond Index. The Company considers this to be an appropriate index against which to measure the Company's performance, in the absence of a meaningful quoted benchmark index.

Cumulative performance to 31 December 2022