Gcp Asset Bckd Regulatory News (GABI)

GCP Asset Backed Income Fund Limited

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

LEI: 213800FBBZCQMP73A815

Half-yearly report and unaudited interim condensed financial statements for the period ended 30 June 2022

The Directors of the Company are pleased to announce the Company's interim results for the period ended 30 June 2022. The full unaudited half-yearly report and unaudited condensed financial statements can be accessed via the Company's website at www.gcpassetbacked.com.

For further information, please contact: 

ABOUT THE COMPANY

GCP Asset Backed Income Fund Limited 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. The Company 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 30 June 2022, its market capitalisation was £421.4 million. The Company is a constituent of the FTSE All-Share Index.

AT A GLANCE - 30 JUNE 2022

HIGHLIGHTS FOR THE PERIOD

- Dividends of 3.162 pence per share declared for the period, in line with the increased dividend target3 of 6.325 pence per share for the year.

- Total shareholder return4 for the period of 2.0% (30 June 2021: 16.0%) and an annualised total shareholder return since IPO4 of 5.2%.

- Profit for the period of £10.2 million (30 June 2021: £16.1 million) reflecting the impact of the decrease in fair value of the Group's Co-living loan. Excluding the fair value decrease, profit for the period would have been £15.6 million (30 June 2021: £18.7 million).

- NAV per share of 98.455 pence at 30 June 2022.

- Loans of £25.9 million advanced and repayments of £42.7 million received in the period.

- Exposure to a diversified, partially inflation and/or interest rate protected portfolio of 59 asset backed loans with a third party valuation of £423.66 million at 30 June 2022.

- Post period end, the Group advanced £23.7 million secured against four projects and received repayments totalling £11.1 million.

1. Includes the valuation of the Subsidiary, refer to note 8 for further information.

2. Total dividend of 3.1625 pence includes a quarterly dividend of 1.58125 pence per share for the quarter to 30 June 2022, which was declared post period end.

3. Information in relation to dividends set out above is for illustrative purposes only and is not intended to be, and should not be taken as, a profit forecast or estimate.

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

5. Does not include a provision for the dividend in respect of the quarter to 30 June 2022, which was declared and paid post period end.

6. Valuation of the loan portfolio held by the Subsidiary. The Company makes its investments through its wholly owned Subsidiary. Refer to note 1 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.

Further information on Company performance can be found below.

1. Including the Company's Co-living loan which is held at net realisable value. Excluding this loan, the weighted average annualised yield2 is 7.85%.

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

3. Information in relation to dividends set out above is for illustrative purposes only and is not intended to be, and should not be taken as, a profit forecast or estimate.

4. Total dividend of 3.1625 pence includes a quarterly dividend of 1.58125 pence per share for the quarter to 30 June 2022, which was declared post period end.

PORTFOLIO AT A GLANCE

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

PROPERTY

- 19 loans within sector

- £176.3m

- 42%

SOCIAL INFRASTRUCTURE

- 22 loans within sector

- £166.0m

- 39%

ENERGY AND INFRASTRUCTURE

- 8 loans within sector

- £26.8m

- 6%

ASSET FINANCE

- 10 loans within sector

- £54.5

- 13%

SENIOR RANKING SECURITY

73%

WEIGHTED AVERAGE ANNUALISED YIELD1

7.4%2

INFLATION AND/OR INTEREST RATE PROTECTION MECHANISMS

49%

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

2. Including the Company's Co-living loan which is held at net realisable value. Excluding this loan, the weighted average annualised yield1 is 7.85%.

CHAIRMAN'S INTERIM STATEMENT

The first half of 2022 has seen major changes in the macro-economic environment which bring both challenges and opportunities.

Introduction

The first half of 2022 has seen major changes in the macro-economic environment which bring both challenges and opportunities for the Company. Whilst we have seen a reduction in the value of the Co-living group loan, the rest of the portfolio continues to perform well and has mitigants in place to manage the macro-economic impacts of inflation and interest rate rises, which are described in more detail below.

It has been positive to see the remaining UK Covid-19 restrictions lifted in the period. However, the start of 2022 has brought new challenges, with global business activity restarting post-pandemic and the conflict in Ukraine affecting the macro-economic environment, principally through increases in energy prices. Throughout the period, the portfolio has shown resilience, with 95% of the loans continuing to perform as expected.

Investment activity

At the period end, the Company's portfolio comprised 59 loans, offering diversification through exposure to 22 asset classes including property development, social housing and infrastructure. 86% of the portfolio is secured against physical assets with the balance secured against contracted cash flows.

During the period, the Group advanced £25.9 million secured against 19 projects, with a further £23.7 million invested post period end. The Group continues to target and invest into key sectors with both new and existing borrowers who have demonstrated strong governance and stewardship of their businesses, with a strong pipeline of investment opportunities.

In the period, £42.7 million in repayments have been received, including repayment of the Company's final investment in the battery storage sector as well as repayments of football finance positions and student accommodation projects.

As the Company matures, it is expected that the rate at which principal is repaid will continue to increase. The Company factors in this return of principal when considering its funding needs, ensuring it utilises its RCF where necessary to mitigate against the impact of cash drag.

Portfolio update

The work-out process for the Co-living group loan is ongoing. Since the year end, there has been a decrease in the valuation of the Co-living group loan, resulting in a reduction in the NAV of 1.22 pence per share. This was driven by developments in the sales process for the assets. Whilst this is disappointing, we are confident that the process will be completed satisfactorily and remain committed to realising value for the Company. The Investment Manager has provided further information below.

The multi-use community facility projects which were impacted by the pandemic continue to be held at a discount to par of £1.2 million. These assets were operated under new management in the period and have seen improvement in performance. Further information is provided below.

No other reductions in valuation have been proposed in the period, with the remaining loans in the portfolio performing well.

Excluding the impact of the write-down on the Co-living group loan, the NAV at 30 June 2022 would have increased by 0.38 pence per share over the period. The increase was driven by excess income and principal indexation on a number of care home loans with inbuilt inflation protection mechanisms.

Financial performance

In the period, the Company's portfolio generated total income of £13.4 million with profit for the period of £10.2 million, decreasing from £16.1 million in the prior period due to the decrease in fair value of the Co-living loan as detailed above.

Earnings of 2.32 pence per share on an IFRS basis were generated, which includes the write-down of the Co-living loan and changes to discount rates. Adjusted EPS1 was 3.54 pence per share, compared to the dividend of 3.162 pence for the period.

NAV and share price performance

At the period end, the net assets of the Company were £433.0 million. The NAV per share decreased from 99.29 pence at 31 December 2021 to 98.453 pence at 30 June 2022.

The Company's shares have traded at a discount1 since the outset of the Covid-19 pandemic impacted financial markets, with an average discount1 of 1.1% to NAV in the period. Since IPO, the shares have traded at an average discount1 to NAV of 0.4%. At 30 June 2022, the shares were trading at 95.80 pence, representing a 2.7% discount1 to NAV.

The Board and Investment Manager have continued to release detailed portfolio information in shareholder communications, host regular webinars and meet with shareholders on an individual basis through the period. The Board continues to monitor the discount and will look to implement share buybacks where this would offer value to shareholders.

On 15 September 2022, the closing share price was 94.00 pence with the shares trading at a 4.5% discount1 to NAV.

Investment pipeline

The Investment Manager continues to see good opportunities for investment in line with the investment strategy of the Company and the principles which have guided investment since IPO. The current pipeline includes further investment in residential property development, nurseries and CNG stations which are providing essential services and infrastructure to local communities.

Dividend policy

The Company set a dividend target4 of 6.325 pence per share for 2022. The Directors are pleased to confirm that the Company is on track to meet this target4, with dividends totalling 3.162 pence per share being declared in respect of the period.

Market overview and outlook

The period has seen a reduction in the uncertainties presented by the Covid-19 pandemic, with all remaining restrictions in the UK lifted on 1 April 2022. Whilst the portfolio has been impacted by the Covid-19 pandemic, it remains resilient, with only three of the 59 loans not meeting their principal or interest payment obligations. The majority of the portfolio has performed well, with borrower management teams navigating the challenges of the pandemic to ensure their businesses continue to provide important infrastructure and services such as childcare, accommodation for students, new homes, CNG fuel and care for elderly and vulnerable people.

Across the global economy, challenges in returning to pre-pandemic levels of activity alongside the conflict in Ukraine and increased geopolitical instability have impacted supply chains, employment and energy prices, which in turn has led to a rise in the rate of inflation not seen in the UK for decades.

The portfolio includes a large proportion of loans with contractual mechanisms which offer protection against inflation and/or interest rates. It has a weighted average loan life of five years, allowing for reinvestment at prevailing rates; further detail is provided below. We believe that these features mean that the Company has mitigants in place to operate in an inflationary environment. Equally, the increases in base rates and reduction in available capital from traditional lending sources may present an opportunity for the Company as an alternative lender, to invest in sectors and assets which would previously have been able to access cheaper capital.

The Investment Manager continues to see good opportunities for investment into new projects and is focused on delivering the current pipeline to ensure efficient deployment of repaid capital.

ESG

The Company published its first ESG policy in January 2022, which can be found on the website. The policy details how ESG issues are considered throughout the Company's operations and used to guide decisions, processes and policies wherever possible with the aim of operating a sustainable business model that does not detrimentally impact the environment and provides benefits to society.

In the period, incentive schemes have been implemented which reduce fees charged to borrowers subject to the successful delivery of ESG projects. To date, this has included scholarship nursery places, co-living rooms for refugees fleeing the conflict in Ukraine and sponsored studio space in East London.

The Board is also pleased to announce that Joanna Dentskevich has been appointed as 'ESG representative', being the Director responsible for implementation of ESG policy.

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.

Principal risks and uncertainties

Following a detailed review of the principal risks and uncertainties detailed in the Company's 2021 annual report, the Directors now consider, in light of the current inflationary environment, there to be a new principal risk focusing on the macro-economic environment and a longer period of economic uncertainty. The Directors also concluded that there had been an increase in the residual risk of the principal risk pertaining to credit risk. The remaining risks and uncertainties remain unchanged since publication.

The principal risks and uncertainties are expected to remain relevant to the Company for the next six months of its financial year. The principal risk categories include (but are not limited to) credit risk, economic risk, key resource risk, regulatory risk and execution risk.

Further details can be found below and on pages 52 to 56 of the 2021 annual report.

Going concern statement

The Directors have made an assessment of the Company's ability to continue as a going concern and are satisfied that the Company has adequate resources to continue in operational existence for a period of at least twelve months from the date on which the half-yearly report and unaudited interim condensed financial statements are approved.

The Directors are not aware of any material uncertainties that may cast significant doubt on the Company's ability to continue as a going concern, having taken into account the liquidity of the Group's investment portfolio and the Company's financial position in respect of its cash flows, borrowing facilities and investment commitments (of which there are none of significance). Therefore, the financial statements have been prepared on a going concern basis.

On behalf of the Board

Alex Ohlsson

Chairman

20 September 2022

For more information, refer to the Investment Manager's report below.

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

2. Total dividend of 3.1625 pence includes a quarterly dividend of 1.58125 pence per share for the quarter to 30 June 2022, which was declared post period end.

3. Does not include a provision for the dividend in respect of the quarter to 30 June 2022, which was declared and paid post period end.

4. The dividend target set out above is a target only and not a profit forecast or estimate and there can be no assurance that it will be met.

INVESTMENT MANAGER'S REPORT

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

3.16p1

Dividends declared for the period

2.0%

Total shareholder return2 for the period

The Investment Manager

Gravis Capital Management Limited provides discretionary investment management and risk management services to the Group which includes investment identification, investment due diligence and structuring, investment monitoring, the management and reporting of the existing loan portfolio and financial reporting support. Investment decisions are made on behalf of the Group by the Investment Manager's investment committee, with an update provided to the Board on a quarterly basis and additional updates when significant events have occurred. The Board has overall responsibility for the Group's activities, including the review of investment activity, performance, control and supervision of the Investment Manager.

The Investment Manager also provides advice regarding the Company's equity and debt funding requirements. The Investment Manager is the AIFM to the Company. The basis of the remuneration of the Investment Manager is set out in note 15 to the unaudited interim condensed financial statements.

Summary investment policy

The Company makes investments3 in a diversified portfolio of senior and subordinated debt instruments which are secured against, or comprise, contracted, predictable medium to long-term cash flows and/or physical assets.

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. This will include diversification by asset type, counterparty, locality and revenue source.

The Company's investment objective, other policies and restrictions are set out in its 2021 annual report and financial statements, which is available on the Company's website. There have been no changes since publication.

Asset backed lending overview

Asset backed lending is an approach to structuring investments used to fund infrastructure, industrial or commercial projects, asset financing and equipment leases. 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 the Project Company's assets provides. 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.

Typically, an asset backed lending structure involves a number of counterparties, who enter into contractual relationships with the Project Company that apportion value and risk through providing services (e.g. operations and maintenance) associated with the development, ownership and/or operations of an asset. In structuring an asset backed loan, the Project Company will seek to ensure risks (and associated value) are apportioned to those counterparties best able to manage them. This ensures the effective pricing and management of risks inherent in the asset. Further, it also means the residual risks (and potential rewards) being taken by the Project Company are well understood by the parties providing finance to such company.

The benefits associated with asset backed debt investments

Investment in asset backed loans offers relatively secure and predictable returns to their lenders when compared with general corporate or unsecured lending. Mainstream lenders operating in the market often restrict their lending to certain asset types, sectors or loan sizes, particularly in times of economic uncertainty. Where borrowers may not have access to mainstream financing for reasons other than the creditworthiness of the relevant proposition, such as loan size, tenure, structure or an understanding of the underlying cash flows and/or asset, attractive rates are available for those willing to commit the resource, innovation and time to understanding and identifying a solution for a specific borrower's requirements.

A loan secured against a specific asset (within a Project Company established specifically for that asset) is capable of analysis broadly by reference to a set of known variables such as:

- how an asset generates cash flow;

- its current value;

- expected future value;

- the competence of its service providers; and

- the availability of alternative parties in the event of a failure by one or more service providers.

The need to fully understand the risks associated with a given asset and structure arrangements with experienced service providers to effectively manage those risks requires specialist skills and resources. For this reason, the Company's target market remains underserviced by mainstream lenders, therefore offering an attractive risk-adjusted return for parties with relevant experience and access to the required resources.

1. Total dividend of 3.1625 pence includes a quarterly dividend of 1.58125 pence per share for the quarter to 30 June 2022, which was declared post period end.

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

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

INVESTMENT PORTFOLIO

Portfolio performance

The portfolio performed well in the period, showing resilience, with 95% of the loans continuing to perform as expected.

Investments that have performed well include loans to a children's nursery group which accounted for 6.4% of the portfolio at the period end. The group provides high-quality childcare in specially designed settings and has grown from two to 17 sites, with the support of the Company. In the period, the group completed a significant equity raise which will allow it to continue developing new sites. The Investment Manager is working with the group on new development projects and hopes to provide additional funding in due course. Elsewhere in the portfolio, the five care homes supported by the Company continue to perform well. These homes are modern, purpose-built care homes offering first-rate care to elderly and vulnerable people in regions with an undersupply of care provision. One site is currently under construction and expected to open in 2023. The remaining sites are all operational and currently at 90% occupancy. The Company's total exposure across the operational assets is at an LTV1 of 63%, yielding an average of 8.4% and amortising over the term of the loans. The Investment Manager believes these loans provide good risk-adjusted returns with exposure to profitable assets and strong asset backing.

Co-living update

The Co-living loan defaulted in May 2021 and was placed into administration by the Lender Consortium in September 2021 after a transaction to buy the Co-living group failed. The Investment Manager continues to work on the realisation of the Co-living group's assets with a number of assets now transacted, including the Canary Wharf asset, which exchanged post period end and is expected to complete in October 2022.

In the period, a further write-down of this loan was taken, principally as a result of issues that arose during the due diligence process on the Canary Wharf and Old Oak assets. The Investment Manager believes there are mitigants to these positions and is continuing to work on these to ensure further recovery is made on this loan.

The loan has been challenging to work-out as the Company was lending at a group level as part of a syndicate. This means that agreement must be reached with asset level lenders and co-investors, all of whom have different drivers and objectives. Due to these complications, the significant adviser fees incurred have had a material impact on the recovery made against this loan.

The assets themselves have performed well through the period and continue to do so. The Old Oak asset has moved to c.97% occupancy post period end, with the average weekly rate and projected bookings at its highest ever level, with a significant shift to tenants taking out six to twelve month agreements. We therefore continue to remain positive about the sector and note that no asset level lenders have suffered any losses.

As previously noted, we do not believe any read-across should be made from the position on this loan to the rest of the portfolio, where the Company lends at the asset level. The Investment Manager has been working hard to maximise the recovery available to the Company and has sought to take on board the lessons learned from this loan.

Portfolio updates

The multi-use community facilities were operated under new ownership during the period. These consist of studios, co-working space, bars, food outlets and events space across two sites in London. Collectively, the assets comprise 1.6% of the portfolio. The assets were adversely impacted by the Covid-19 pandemic as restrictions on hospitality and public spaces prevented the sites from operating. As restrictions have lifted, consumer confidence has grown and both sites have seen improvements in footfall.

The percentage of the portfolio invested in overseas projects decreased in the period from 22% at December 2021 to 17% at June 2022. This was primarily driven by repayments of loans to student accommodation assets and football broadcasting contracts outside of the UK. The Investment Manager is not targeting a significant increase in overseas exposure but believes that careful selection of projects which offer risk-adjusted returns and additional diversification is positive for the portfolio.

Exposure to assets under construction has increased from 13% to 17% of the portfolio in the period. All of the construction projects are under fixed price contracts with experienced contractors and the Investment Manager employs third party specialist advisers to monitor the projects and report on key milestones. The projects are all proceeding materially on time and budget with a number anticipated to complete in the coming months.

The Investment Manager believes that pressures on the construction sector from both supply chain challenges and inflation will make fixed price construction contracts harder to access and therefore restrict traditional lending from banks to the sector. This could present interesting funding opportunities for the Company to support larger developments.

Pipeline projects are largely new projects with existing borrowers and into sectors with which the Investment Manager is very familiar. The Investment Manager believes that a consistent approach to asset selection and seeking strong asset backing, good management teams and in sectors where there is structural demand will continue to build a resilient and well-performing portfolio.

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

Inflation

Inflation has continued to increase in the period, with CPI increasing by 9.4% in the twelve months to June 2022. This has primarily been driven by the return to pre-pandemic activity levels and the increase in energy prices due to the ongoing conflict in Ukraine.

An inflationary environment will impact on how borrower companies operate but can equally present opportunities for new investment. At publication date, the Bank of England has increased base rates to 1.75% with further increases anticipated over the next twelve months. Whilst the Investment Manager has not yet seen the increased rates positively impacting the pipeline, further increases in interest rates could see the Company's lending rates become more competitive in sectors which were previously able to access cheaper financing.

As can be seen below, 49% of the portfolio benefits from partial inflation protection by one of the mechanisms set out below and a further 44% consists of loans with a duration of under three years, allowing for reinvestment of loans at prevailing rates, with the remainder of the loans with a duration of over three years. The Investment Manager believes that, together, these characteristics provide mitigation against an inflationary environment. The impact of these protections is already flowing through, with principal indexation on the care home loans contributing a 0.31 pence per share uplift in NAV in the period.

Portfolio characteristics

- Inflation protection mechanisms 49%:

- Principal indexation 20%

- Direct rate linkage 18%

- Profit sharing 11%

- Fixed rate, over 3 years remaining 7%

- Fixed rate, under 3 years remaining 44%

Inflation protection mechanisms

There are a number of mechanisms in place within the portfolio which offer different forms of inflation protection on the loans.

The mechanics of these protections are explained in more detail in the adjacent table. The portfolio characteristics above shows the percentage of the portfolio benefiting from each mechanism.

Given the scale of inflation being reported, when applying these mechanisms, the Investment Manager will take into account the borrower's ability to pass on inflationary costs through their business model and retains discretion on how increases to rates or loans are applied.

The Investment Manager believes that these mechanisms will support the Company in the current inflationary environment and going forward.

TOP TEN INVESTMENTS BY VALUE

Key

1. Sector type

2. % of portfolio by value

3. Asset class

4. Multi/single asset exposure

1. Bridging Co 1

1. Property

2. 5.9%

3. Residential property

4. Multi asset

2. Development Fin Co 6

1. Property

2. 5.0%

3. Residential property

4. Multi asset

3. Student Accom 2

1. Social infrastructure

2. 4.7%

3. Student accommodation

4. Multi asset

4. Property Co 2

1. Social infrastructure

2. 4.1%

3. Social housing

4. Multi asset

5. Contract Income 3

1. Asset finance

2. 3.6%

3. Contract income

4. Single asset

6. Care Homes Co 3

1. Social infrastructure

2. 3.5%

3. Care home

4. Single asset

7. Property Co 7

1. Property

2. 3.5%

3. Residential property

4. Multi asset

8. Property Co

1. Social infrastructure

2. 3.5%

3. Social housing

4. Multi asset

9. Co-living Co 3

1. Property

2. 3.2%

3. Co-living

4. Multi asset

10. Care Homes Co 2

1. Social infrastructure

2. 3.1%

3. Care home

4. Single asset

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

Investment portfolio

At 30 June 2022, the Group was exposed to a diversified portfolio of 59 asset backed investments with a fair value of £423.61 million, of which 73% benefit from senior security and 49% from partial inflation and/or interest rate protection. The weighted average annualised yield2 on the Group's investments was 7.4%3, with a weighted average expected term of five years.

The key metrics above, principally yield and inflation and/or interest rate protection, are in line with the same period last year, demonstrating that the Company is continuing to deploy capital efficiently at rates that are value accretive to shareholders.

The portfolio is primarily backed by assets in the UK, representing 83% of such security, with the remainder of the assets located in Europe, the USA, Australia and Hong Kong.

The Company has minimal currency exposure (which is hedged) with all investments either denominated in Pound Sterling or exposure hedged to Pound Sterling using rolling forward contracts. Post period end, the Company advanced a further £3.2 million secured against international projects.

PORTFOLIO ANALYSIS

SECTOR TYPE

Property | 42%

Social infrastructure | 39%

Asset finance | 13%

Energy and infrastructure | 6%

SECURITY RANKING

Senior | 73%

Mezzanine | 27%

INTEREST RATE PROFILE

7-8% | 38%

>8% | 36%

TERM PROFILE

5-10 yrs | 7%

>10 yrs | 21%

LOCATION

UK | 83%

Europe | 8%

Rest of world | 9%

1. Valuation of the loan portfolio held by the Subsidiary.

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

3. Including the Co-living loan which is held at net realisable value. Excluding this loan, the weighted average annualised yield2 is 7.85%.

New investments

During the period, the Group made investments totalling £25.9 million.

Investments have been made in a number of attractive asset classes over the period, including football finance, new build residential property developments and construction of a purpose-built care home.

Repayments in the period have included the final battery storage project which the Company was invested in, resulting in a final IRR of 9.1%. In addition, the Company has received repayment on the first football finance position and a partial repayment of an overseas student accommodation project.

The Investment Manager continues to see a strong pipeline of attractive asset backed financing opportunities.

INVESTMENTS AND REPAYMENTS DURING THE PERIOD1

INVESTMENTS AND REPAYMENTS POST PERIOD END1

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

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

RISKS AND VIABILITY

Update on principal risks and uncertainties

The Board considers the principal uncertainties faced by the Company during the year to be as detailed below.

UNCERTAINTY 1: Covid-19

Since early 2020, there has been a period of rapid regulatory, economic and societal change to manage the spread of Covid-19, which has presented challenges for operational businesses. In the period, all remaining Covid-19 restrictions in the UK were lifted.

Travel restrictions for Australia have remained in place during the period, although these have now been lifted post period end. Student accommodation projects have seen the impact of these restrictions with reduced occupancy as universities continue to offer hybrid learning. However, as these restrictions have now been lifted, we expect improved occupancy moving into the next academic year.

At the time of writing, the likelihood of new Covid-19 regulations being introduced is very low, with little political appetite to return to such restrictions. However, businesses continue to experience issues around staffing, illness and supply chain management being attributed to the lasting impact of the pandemic.

To date, the impact on the Company's portfolio has been limited to the operation of the Co-living group and the Company's investments in multi-use community facilities. Positively, operational performance of both the community facility assets has improved in the period.

Covid-19 remains a principal uncertainty for the Company and the Board continues to monitor its impact on the Company's portfolio.

UNCERTAINTY 2: BREXIT

Significant uncertainty around the economic relationship between the UK and the EU continues. Following the expiry of the transition period on 31 December 2020, the terms on which the UK will interact with the EU continue to be negotiated.

Post period end, following the resignation of Boris Johnson, Liz Truss won the Conservative party leadership contest and became prime minister of the UK. We are not anticipating any major change to the current Brexit position noting that Ms Truss' position remained consistent with the previous administration during her campaign to become prime minister.

Brexit legislation is having an impact on supply chain and staffing, particularly for projects under construction or reliant on a migrant workforce. Therefore, the Board believes that Brexit should remain a principal uncertainty for the Company.

UNCERTAINTY 3: CONFLICT IN UKRAINE

As noted in the 2021 annual report of the Company, the Board considers the ongoing conflict in Ukraine to be a principal uncertainty for the Company.

Although the Company is predominantly invested in the UK with no investments in Ukraine, Russia, or Belarus, or borrowers being impacted by sanctions imposed due to the war, the Company's borrowers are exposed to the increases in energy prices now being experienced worldwide as a result of the conflict. 

To date, the impact has been limited with the assets in the portfolio absorbing increases in their budgets. However, the Board is aware that the rise in energy costs will be a concern for all businesses within the portfolio impacting their operating costs and profitability.

The Board continues to monitor the wider impact of the conflict on geopolitical relationships and volatility in the energy market.

In the period, one of the residual risk profiles of the principal risks included in the Company's 2021 annual report and financial statements has increased, with the residual risk profile of all other principal risks remaining stable. In addition, the Board has identified a new principal risk, which is set out below.

Going concern and viability

The Investment Manager has carried out a going concern and viability review. This analysed the scenarios and estimates used in the viability assessment included in the 2021 annual report and noted no significant variances. The analysis considered the equity financing, debt financing and investment portfolio of the Company, and which has been reviewed by the Board.

The Board remains of the view that none of the challenges identified impact the going concern or viability of the Company.

COMPANY PERFORMANCE

The Company has increased its dividend target for the year and continues to deliver regular income to shareholders.

1. Total dividend of 3.15625 pence includes a quarterly dividend of 1.58125 pence per share for the quarter to 30 June 2022, which was declared post period end.

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

3. Total dividend declared for the period annualised, relative to the closing share price at the period end, expressed as a percentage.

4. Does not include a provision for the dividend in respect of the quarter to 30 June 2022, which was declared and paid post period end.

FINANCIAL REVIEW

The Company generated total income of £10.2 million, declared dividends of 3.161 pence per share and delivered a total shareholder return2 of 2.0% for the period.

Financial performance

The Company has prepared its half-yearly report and unaudited interim condensed financial statements in accordance with IAS 34 Interim Financial Reporting.

In the period, the Company's portfolio generated total income of £13.4 million (30 June 2021: £19.4 million). Profit for the period was £10.2 million (30 June 2021: £16.1 million), with basic EPS of 2.32 pence (30 June 2021: 3.67 pence). Adjusted EPS2 for the period was 3.54 pence per share, which excludes the unwind of changes in discount rates in relation to the Covid-19 pandemic and the write-down on the Co-living loan.

The dividend for the period of 3.161 pence was paid as 1.58125 pence per share for the quarter to 31 March 2022 with a further dividend of 1.58125 pence per share for the quarter to 30 June 2022, declared post period end, on 22 July 2022.

Ongoing charges

The Company's ongoing charges percentage2 for the period, calculated in accordance with the AIC methodology, was 1.2% annualised (30 June 2021: 1.2% annualised).

Investment valuation

The weighted average discount rate2 across the portfolio at 30 June 2022 was 7.62%. The valuation of investments is sensitive to changes in discount rates applied. A sensitivity analysis detailing the impact of a change in discount rates is given in note 14.3.

The Valuation Agent carries out a fair market valuation of 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 (excluding the Co-living loan); refer to note 14.3 for further information. 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.

Cash position

The Company received interest payments of £15.7 million (30 June 2021: £17.2 million) and capital repayments of £42.7 million (30 June 2021: £37.6 million) in the period, in line with expectations. The Company paid cash dividends of £13.9 million (30 June 2021: £13.9 million) and a further £7.0 million post period end. Total cash reserves at the period end were £8.6 million (30 June 2021: £9.5 million).

Borrowings

The Company continues to utilise its RCF with RBSI for an amount of £50 million, which expires in August 2023. At the period end £1.9 million was drawn (31 December 2021: £19.9 million). The Company uses the RCF to ensure it effectively utilises its cash resources to reduce any cash drag which impacts dividend coverage.

Conflicts of interest

In the period, £1.5 million was advanced under existing facilities to finance development projects in the USA and Australia. Post period end, the Group committed £18.6 million to finance a residential development project in the USA.

The directors of the Investment Manager directly or indirectly own an equity interest in these development projects. In accordance with the Company's investment approval process, the investments were reviewed and approved by the Board.

GCP Infra

Where there is any overlap for a potential investment with GCP Infra, GCP Infra has a right of first refusal over such investment. During the period, no investments were offered to GCP Infra under its right of first refusal. To date, no investments offered to GCP Infra have been accepted.

1. Total dividend of 3.1625 pence includes a quarterly dividend of 1.58125 pence per share for the quarter to 30 June 2022, which was declared post period end.

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

STATEMENT OF DIRECTORS' RESPONSIBILITIES

Under the terms of the DTRs of the FCA, the Directors are responsible for preparing the half-yearly report and unaudited interim condensed financial statements in accordance with applicable regulations.

The Directors confirm to the best of their knowledge that:

- the unaudited interim condensed financial statements have been prepared in accordance with IAS 34 Interim Financial Reporting;

- the Chairman's interim statement and the Investment Manager's report constitute the Company's interim management report, which includes a fair review of the information required by DTR 4.2.7R (indication of important events during the first six months and description of principal risks and uncertainties for the remaining six months of the year);

- the unaudited interim condensed financial statements include a fair review of the information required by DTR 4.2.8R (disclosure of related parties' transactions and changes therein); and

- the half-yearly report and unaudited interim condensed financial statements for the period ended 30 June 2022 give a true and fair view of the assets, liabilities, financial position and return of the Company.

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. Legislation in Jersey governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

On behalf of the Board

Alex Ohlsson

Chairman

20 September 2022

INDEPENDENT REVIEW REPORT

To GCP Asset Backed Income Fund Limited

Report on the unaudited interim condensed financial statements

Our conclusion

We have reviewed GCP Asset Backed Income Fund Limited's unaudited interim condensed financial statements (the "interim financial statements") in the half-yearly report and unaudited interim condensed financial statements of GCP Asset Backed Income Fund Limited for the six month period ended 30 June 2022. Based on our review, nothing has come to our attention that causes us to believe that the interim financial statements are not prepared, in all material respects, in accordance with International Accounting Standard 34, 'Interim Financial Reporting', and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.

What we have reviewed

The interim financial statements comprise:

- the unaudited interim condensed statement of financial position as at 30 June 2022;

- the unaudited interim condensed statement of comprehensive income for the period then ended;

- the unaudited interim condensed statement of cash flows for the period then ended;

- the unaudited interim condensed statement of changes in equity for the period then ended; and

- the explanatory notes to the interim financial statements.

The interim financial statements included in the half-yearly report and unaudited interim condensed financial statements have been prepared in accordance with International Accounting Standard 34, 'Interim Financial Reporting', and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.

Responsibilities for the interim financial statements and the review

Our responsibilities and those of the Directors

The half-yearly report and unaudited interim condensed financial statements, including the interim financial statements, is the responsibility of, and has been approved by, the Directors. The Directors are responsible for preparing the half-yearly report and unaudited interim condensed financial statements in accordance with International Accounting Standard 34, 'Interim Financial Reporting', and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.

Our responsibility is to express a conclusion on the interim financial statements in the half-yearly report and unaudited interim condensed financial statements based on our review. This report, including the conclusion, has been prepared for and only for the Company for the purpose of complying with the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority and for no other purpose. We do not, in giving this conclusion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

What a review of interim financial statements involves

We conducted our review in accordance with International Standard on Review Engagements 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the International Auditing and Assurance Standards Board. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures.

A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing and, consequently, does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

We have read the other information contained in the half-yearly report and unaudited interim condensed financial statements and considered whether it contains any apparent misstatements or material inconsistencies with the information in the interim financial statements.

PricewaterhouseCoopers CI LLP

Chartered Accountants

Jersey, Channel Islands

20 September 2022

UNAUDITED INTERIM CONDENSED STATEMENT OF COMPREHENSIVE INCOME

For the period ended 30 June 2022

All items in the above statement are derived from continuing operations.

The notes below form an integral part of the financial statements.

UNAUDITED INTERIM CONDENSED STATEMENT OF FINANCIAL POSITION

As at 30 June 2022

The unaudited interim condensed financial statements were approved and authorised for issue by the Board of Directors on

20 September 2022 and signed on its behalf by:

Alex Ohlsson

Chairman

Colin Huelin FCA

Director

The notes below form an integral part of the financial statements.

UNAUDITED INTERIM CONDENSED STATEMENT OF CHANGES IN EQUITY

For the period ended 30 June 2022

UNAUDITED INTERIM CONDENSED STATEMENT OF CHANGES IN EQUITY

For the period ended 30 June 2021

The notes below form an integral part of the financial statements.

UNAUDITED INTERIM CONDENSED STATEMENT OF CASH FLOWS

For the period ended 30 June 2022

The notes below form an integral part of the financial statements.

NOTES TO THE UNAUDITED INTERIM CONDENSED FINANCIAL STATEMENTS

For the period ended 30 June 2022

1. General information

The Company is a public closed-ended investment company incorporated on 7 September 2015 and domiciled in Jersey, with registration number 119412. The Company is governed by the provisions of the Jersey Company Law and the CIF Law.

The ordinary and C shares (when in issue) of the Company are admitted to the Official List of the FCA and are traded on the Premium Segment of the Main Market of the LSE.

The Company makes its investments through its wholly owned Subsidiary, by subscribing for the Secured Loan Notes issued by the Subsidiary. The Subsidiary subsequently on-lends the funds to borrowers.

At 30 June 2022, the Company had one wholly owned Subsidiary, GABI UK, (31 December 2021: one) incorporated in England and Wales on 23 October 2015 (registration number 9838893). GABI UK had two subsidiaries (31 December 2021: two): GABI Housing (registration number 10497254) incorporated in England and Wales on 25 November 2016 and GABI GS (registration number 10546087) incorporated in England and Wales on 4 January 2017. The Company, GABI UK, GABI Housing (including its subsidiary, GABI Blyth (dissolved on 7 June 2022)) and GABI GS comprises the Group. The registered office address for GABI UK, GABI Housing, GABI Blyth (prior to its dissolution) and GABI GS is 24 Savile Row, London W1S 2ES.

GABI GS holds shares as security for loans issued to underlying borrowers, where required. Its purpose is to isolate any potential liabilities that may arise from holding shares as security from the Company.

GABI Housing invests in five properties and the social income stream that is derived from these properties through letting them to specialist housing associations.

The Company, through its Subsidiary, 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 Group's investments are predominantly 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 Group's investments are typically unquoted and include, but are not limited to, senior loans, subordinated loans, mezzanine loans, bridge loans and other debt instruments. The Group 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 Group at all times invests and manages its assets in a manner which is consistent with the objective of spreading investment risk.

Where possible, investments are structured to benefit from partial inflation and/or interest rate protection.

2. Significant accounting policies

The principal accounting policies applied in the preparation of these unaudited interim condensed financial statements are set out below. In the current period, the Company has applied amendments to IFRS. These include annual improvements to IFRS, changes in standards, legislative and regulatory amendments, changes in disclosure and presentation requirements. The adoption of these has had no material impact on these or prior years' financial statements and the accounting policies used by the Company followed in these condensed interim financial statements are consistent with the 2021 annual report.

2.1 Basis of preparation

The unaudited interim condensed financial statements for the period ended 30 June 2022 have been prepared in accordance with IAS 34 Interim Financial Reporting.

The unaudited interim condensed financial statements do not include all financial information required for full annual financial statements and therefore do not constitute statutory accounts as defined in the Jersey Company Law. They should be read in conjunction with the Company's annual report and financial statements for the year ended 31 December 2021 which were prepared in accordance with IFRS issued by the IASB and interpretations issued by IFRIC as approved by IASC (which remain in effect) and audited by the Independent Auditor, who issued an unqualified audit opinion.

The accounting policies adopted in the unaudited interim condensed financial statements are the same as those applied in the annual report and financial statements for the year ended 31 December 2021.

The financial information for the period ended 30 June 2022 has been reviewed by the Independent Auditor, in accordance with International Standard on Review Engagements 2410, Review of Interim Financial Information performed by the Independent Auditor, and were approved for issue on 20 September 2022.

The financial risk management objectives include (but are not limited to) market risk, interest rate risk, credit risk, currency risk and liquidity risk which are detailed in the Company's 2021 annual report and financial statements. The Board considers that these remain unchanged.

In accordance with the investment entities exemption contained in IFRS 10 Consolidated Financial Statements, the Directors have determined that the Company continues to meet the definition of an investment entity and as a result the Company is not required to prepare consolidated financial statements. The Company's investment in its Subsidiary is measured at fair value and treated as a financial asset through profit or loss in the statement of financial position (refer to note 2.2(b)).

The Company raises capital through the issue of ordinary shares and C shares. The net assets attributable to the C share class, when in issue, are accounted for and managed by the Company as a distinct pool of assets, with the Company ensuring that separate cash accounts are created and maintained. Expenses are either specifically allocated to an individual share class or split proportionally by the NAV of each share class. When in issue, C shares are classified as a financial liability. At 30 June 2022, there were no C shares in issue (31 December 2021: none).

Functional and presentation currency

The primary objective of the Company is to generate returns in Pound Sterling, its capital raising currency. The Company's performance is evaluated in Pound Sterling. Therefore, the Directors consider Pound Sterling as the currency that most faithfully represents the economic effects of the underlying transactions, events and conditions.

The unaudited interim condensed financial statements are presented in Pound Sterling and all values have been rounded to the nearest thousand pounds (£'000) except where otherwise indicated.

Going concern

The Directors have made an assessment of the Company's ability to continue as a going concern and are satisfied that the Company has the resources to continue in business for the foreseeable future, being a period of at least twelve months from the date on which these unaudited interim condensed financial statements were approved.

The Directors noted the cash balance exceeds any short-term liabilities and the Company is able to meet the obligations of the Company as they fall due. The surplus cash reserves in addition to the RCF enables the Company to meet any funding requirements and finance future additional investments. The Company is a closed-ended investment company, where assets are not required to be liquidated to meet day-to-day redemptions.

Whilst the economic future is uncertain, and the Directors believe that it is possible the Company could experience further reductions in income and/or valuation of the underlying investment portfolio, this should not be to a level which would threaten the Company's ability to continue as a going concern.

Furthermore, the Directors are not aware of any material uncertainties that may cast doubt upon the Company's ability to continue as a going concern, having taken into account the liquidity of the Company's investment portfolio and the Company's financial position in respect of its cash flows, borrowing facilities and investment commitments. Therefore, the unaudited interim condensed financial statements have been prepared on a going concern basis.

2.2 Significant accounting estimates and judgements

The preparation of unaudited interim condensed financial statements in accordance with IFRS requires the Directors to make estimates and judgements that affect the reported amounts recognised in the unaudited interim condensed financial statements. However, uncertainty about these assumptions and judgements could result in outcomes that require a material adjustment to the carrying amount of the asset or liability in the future. There are no changes in estimates reported in prior financial statements that require disclosure in these financial statements.

(a) Critical accounting estimates and assumptions

Fair value of instruments not quoted in an active market

The Company's investments are made by subscribing for the Secured Loan Notes issued by the Subsidiary. The Subsidiary's assets consist of investments held by the Subsidiary, which represent secured loan facilities issued to the Project Companies. The Subsidiary's assets are not quoted in an active market and, therefore, the fair value is determined using a discounted cash flow methodology (excluding the Co-living loan), adjusted as appropriate for market, credit and liquidity risk factors (refer to note 14.3 for further information). This requires assumptions to be made regarding future cash flows and the discount rates applied to these cash flows. The Subsidiary's investments are valued by a third party Valuation Agent on a semi-annual basis. Investments which may be subject to discount rate changes are valued on a quarterly basis.

The models used by the Valuation Agent use observable data to the extent practicable. However, areas such as credit risk (both own and counterparty), volatilities (including inflation) and correlations require estimates to be made. Changes in assumptions about these factors could affect the reported fair value of financial instruments.

The determination of what constitutes 'observable' requires significant judgement by the Company. The Company considers observable data to be market data that is readily available, regularly distributed or updated, reliable and verifiable, not proprietary, and provided by independent sources that are actively involved in the relevant market.

The investment in the Subsidiary is held at fair value through profit or loss. Income distributions and interest payments from the Subsidiary are included as part of the fair value movement calculation, together with any unrealised movement in the fair value of the holding in the Subsidiary.

The value of the investment in the Subsidiary is based on the aggregate of the NAV of the Subsidiary and the value of the Secured Loan Notes issued by the Subsidiary. Refer to note 8 for further details.

The valuation of the Co-living loan

The Group's Co-living loan was valued by combining recovery values on realised assets with an estimate of recoverability of amounts on the three key remaining properties. The estimates are based on negotiations with prospective buyers and independent valuation reports. Further, adjustments to reflect specific known transaction risks were applied and additional assumptions were applied for professional fees required to complete the sale of remaining assets. Further information is given in note 14.3.

(b) Critical judgements

Assessment as investment entity

The Directors have concluded that the Company continues to meet the definition of an investment entity.

Entities that meet the definition of an investment entity within IFRS 10 Consolidated Financial Statements are required to measure their subsidiaries at fair value through profit or loss rather than consolidate. The criteria which define an investment entity are as follows:

- an entity that obtains funds from one or more investors for the purpose of providing those investors with investment services;

- an entity that commits to its investors that its business purpose is to invest funds solely for returns from capital appreciation, investment income or both; and

- an entity that measures and evaluates the performance of substantially all of its investments on a fair value basis.

The Directors have concluded that the Company continues to meet the characteristics of an investment entity, in that it:

- raises funds from investors through the issue of equity, has more than one investor and its investors are not related parties, other than those disclosed in note 15;

- invests in a portfolio of investments held by the Subsidiary for the purposes of generating risk-adjusted returns through regular distributions and modest capital appreciation; and

- the Company's investments are held at fair value through profit or loss with the performance of its portfolio evaluated on a fair value basis.

Accordingly, the Company's Subsidiary is not consolidated, but rather the investment in the Subsidiary is accounted for at fair value through profit or loss. The value of the investment in the Subsidiary is based on the aggregate of the NAV of the Subsidiary and the value of the Secured Loan Notes issued by the Subsidiary.

(c) Segmental information

The Directors view the operations of the Company as one operating segment, being the investment portfolio of asset backed loans held through the Subsidiary, which is a registered UK company. All significant operating decisions are based on the analysis of the Subsidiary's investments as one segment. The financial results from this segment are equivalent to the financial results of the Company as a whole, which are evaluated regularly by the Directors.

3. Operating income

The table below analyses the operating income derived from the Company's financial assets and financial liabilities at fair value through profit or loss:

1. Refer to note 8 for further information.

2. Comprises downward revaluation in respect of Co-living loan partially offset by unrealised gains in respect of discount rate adjustments and principal indexation of £1.4 million applied to certain loans.

3. Comprises foreign exchange losses upon repayment of a loan which are offset by gains on forward foreign exchange contracts.

The table below analyses other income earned by the Company by type:

4. Finance expenses

5. Taxation

Profits arising in the Company for the period ended 30 June 2022 are subject to tax at the standard rate of 0% (30 June 2021: 0%) in accordance with the Income Tax Law.

6. Dividends

1. The second interim dividend was declared after the period end and is therefore not accrued for in the unaudited interim condensed financial statements.

On 22 July 2022, the Company declared a second interim dividend of 1.58125 pence per ordinary share amounting to £7.0 million which was paid on 2 September 2022 to ordinary shareholders on the register at close of business on 5 August 2022.

The Board, at its discretion, has suspended the scrip dividend alternative as a result of the likely discount between any scrip dividend reference price of the shares and the NAV per share of the Company. The Board intends to keep the payment of future scrip dividends under review.

7. Earnings per share

Basic earnings per share is calculated by dividing profit for the period attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares in issue during the period, excluding shares held in treasury. Diluted earnings per share is calculated by dividing the profit attributable to ordinary shareholders by the diluted weighted average number of ordinary shares, excluding shares held in treasury.

8. Financial assets at fair value through profit or loss: investment in Subsidiary

The Company's financial assets at fair value through profit or loss comprise its investment in the Subsidiary, which represents amounts advanced to finance the Group's investment portfolio in the form of Secured Loan Notes and equity. The Company's investment in the Subsidiary comprised:

1. Comprises foreign exchange losses upon repayment of a loan which are offset by gains on forward foreign exchange contracts.

2. Comprises write-down of the Co-living loan, partially offset by unrealised gains in respect of discount rate adjustments.

3. Other unrealised movements on investments at fair value through profit or loss are attributable to the timing of the debt service payments and principal indexation of £1.4 million applied to certain loans.

The difference between the fair value of the Secured Loan Notes and the underlying investments held by the Subsidiary is as a result of payment timings and differing application of the effective interest rate in respect of the underlying investments, as set out in the table below.

The above represents a 100% interest in the Subsidiary at 30 June 2022 (31 December 2021: 100%).

9. Other receivables and prepayments

10. Cash and cash equivalents

11. Interest-bearing loans and borrowings

Any amounts drawn under the RCF are to be used in, or towards, the making of investments (including a reduction of the available commitment as an alternative to cash cover for entering into forward foreign exchange contracts) in accordance with the Company's investment policy.

On 19 August 2021, the Company entered into an agreement with RBSI to extend the existing £50 million RCF by 24 months to August 2023, with an additional one year extension option subject to lender approval. All terms of the RCF remain unchanged except for the interest rate benchmark.

Interest on amounts drawn under the RCF was charged at LIBOR plus 2.10% per annum from 16 April 2019 until the facility was extended on 19 August 2021, when it was amended and restated and the interest benchmark rate changed from LIBOR to SONIA (plus a credit adjustment spread) plus a 2.10% margin. A commitment fee is payable on undrawn amounts at a rate of 0.84% per annum.

The total costs incurred to extend the facility to August 2023 were £450,000, of which £425,000 related to the arrangement fees and £25,000 in associated legal fees. The legal fees are included as arrangement fees for reporting purposes.

A total of £111,000 of costs were amortised (30 June 2021: £120,000) as loan arrangement fees during the period and charged through the statement of comprehensive income; refer to note 4.

Total drawdowns of £1.9 million were repayable at the period end (31 December 2021: £19.9 million).

During the period, utilisation requests were submitted to RBSI in relation to the open forward foreign exchange contracts. These utilisations restrict the amount available for drawdown on the RCF. At the period end, a utilisation request for the sum of £1.5 million (30 June 2021: £2.2 million) was in place, which limited the amount available for drawdown to £46.6 million.

The RCF with RBSI is secured against the investment in the Subsidiary.

At 30 June 2022, the Company is in full compliance with all loan covenants stipulated in the RCF agreement.

12. Other payables and accrued expenses

13. Authorised and issued share capital

1. The offer of a scrip dividend alternative was suspended at the Board's discretion, 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.

The Company's share capital is represented by no par value ordinary shares.

The ordinary shares carry the right to dividends out of the profits available for distribution as determined by the Board. Each holder of an ordinary share is entitled to attend meetings of shareholders and, on a poll, to one vote for each share held.

The Company may also issue C shares which, when in issue, are classified as a financial liability (refer to note 2.1). There were no C shares in issue at 30 June 2022 (31 December 2021: none).

14. Financial instruments

The table below sets out the classifications of the carrying amounts of the Company's financial assets and financial liabilities into categories of financial instruments.

14.1 Derivative financial instruments

Derivative financial instruments comprise forward foreign exchange contracts for the purpose of hedging foreign currency exposure of the Company to four Euro and one US Dollar denominated investments made by the Subsidiary (for which the final repayment dates range from 31 March 2023 to 30 June 2027); the investments represent 3.1% of the portfolio by value at the period end (31 December 2021: 6.2%). The Company intends to utilise the forward foreign exchange contract on a rolling three month basis for the term of the investment.

The tables below set out the forward foreign exchange contracts held by the Company:

14.2 Capital management

The Company's capital is represented by share capital comprising issued ordinary share capital and its credit facilities, as detailed in notes 13 and 11 respectively.

The Company may seek to raise additional capital from time to time to the extent that the Board and the Investment Manager believe the Company will be able to make suitable investments. The Company raises capital only when it has a clear view of a robust pipeline of advanced investment opportunities to ensure the rapid deployment of capital.

The Company may borrow up to 25% of its NAV at such time any such borrowings are drawn down.

14.3 Fair value of financial assets

Valuation of financial instruments

The Company measures fair values using the following fair value hierarchy that reflects the significance of inputs used in making the measurements. Categorisation within the hierarchy has been determined on the basis of the lowest level input that is significant to their fair value measurement of the relevant assets as follows:

- Level 1: valued using quoted prices unadjusted in active markets for identical assets or liabilities;

- Level 2: valued by reference to valuation techniques using observable inputs for the asset or liability other than quoted prices included in Level 1; or

- Level 3: valued by reference to valuation techniques using inputs that are not based on observable market data for the asset or liability.

An investment is always categorised as Level 1, 2 or 3 in its entirety. In certain cases the fair value measurement for an investment may use a number of different inputs that fall into different levels of the fair value hierarchy. In such cases, an investment level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The assessment of the significance of a particular input to the fair value measurement requires judgement and is specific to the investment.

The Valuation Agent has carried out semi-annual fair valuations of the financial assets of the Subsidiary (quarterly for investments subject to discount rate changes). The same discount rates, determined by the Valuation Agent, are applied to the future cash flows of the Secured Loan Notes, to determine the fair value of the assets of the Company.

The Company recognises transfers between levels of the fair value hierarchy at the end of the reporting period during which the change has occurred.

The tables below set out fair value measurements of financial instruments at the period/year end, by the level in the fair value hierarchy into which the fair value measurement is categorised. The amounts are based on the value recognised in the unaudited interim condensed statement of financial position. All fair value measurements are recurring.

The derivative financial instruments are classified as Level 2 as observable market data is used for valuation and pricing.

The Directors have classified the financial instruments relating to 'Investment in Subsidiary' as Level 3 due to the limited number of comparable and observable market transactions in this sector. The primary input for Level 3 at year end is the discount rates for these investments (excluding the Co-living loan, refer below for further information); discount rates are considered to be primarily modelled rather than market observed. The secured loan facilities that the Subsidiary has invested in are also classified as Level 3.

The following table shows a reconciliation of all movements in the fair value of financial instruments categorised within Level 3 between the beginning and end of the period/year:

1. Comprises foreign exchange losses upon repayment of a loan which are offset by gains on forward foreign exchange contracts.

2. Refer to note 8 for further information.

For the Company's financial instruments categorised as Level 3, changing the discount rate used to value the underlying instruments alters the fair value. In determining the discount rate for calculating the fair value of financial assets at fair value through profit or loss, reference is made to Pound Sterling interest rates, movements of comparable credit markets and observable yield on comparable instruments. Hence, movements in these factors would give rise to changes in the discount rate. A change in the discount rate used to value Level 3 investments would have the effect on the valuation as shown in the table below.

The fair value of the investment in the Subsidiary is based on the aggregate of the NAV of the Subsidiary and the value of the Secured Loan Notes issued by the Subsidiary. At 30 June 2022, the NAV of the Subsidiary was as follows:

1. Refer to note 8 for further information.

The key driver of the NAV of the Subsidiary is the valuation of its portfolio of secured loan facilities issued to the Project Companies.

The Secured Loan Notes issued by the Subsidiary that the Company has subscribed for, are valued on a discounted cash flow basis in line with the methodology used by the Valuation Agent, applying the following discount rates:

1. Including the NAV of the Subsidiary.

2. Balance excludes the fair value of the Co-living loan which is not valued on a discounted cash flow basis.

3. Weighted average discount rate5.

4. Fair value of the Co-living loan which is not valued on a discounted cash flow basis, see below for further information.

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

The investments in Project Companies held by the Subsidiary (excluding the Co-living loan) are valued on a discounted cash flow basis, in line with the methodology used by the Valuation Agent. At the period end, discount rates ranged from 6-13% (31 December 2021: 5-13%).

At 30 June 2022, the Group's Co-living loan was valued at £13.4 million (31 December 2021: £18.8 million), which represents an estimate of recoverability of amounts secured against six key underlying properties and four other underlying properties. The value is based on (i) realised sales values of three assets, (ii) negotiated purchase prices with buyers in ongoing sales processes and (iii) valuation reports from independent valuers. Adjustments to reflect known transaction risks and professional fees were also made to the valuation of the loan.

The Directors review the valuation report provided by the Valuation Agent which includes reference to the inputs used in the valuation of investments and the appropriateness of their classification in the fair value hierarchy. In particular, the Directors are satisfied that the significant inputs into the determination of the discount rate adopted by the Valuation Agent are pursuant to the Valuation Agent engagement letter. Should the valuation approach change, causing an investment to meet the characteristics of a different level of the fair value hierarchy, it will be reclassified accordingly.

During the period, there were no transfers of investments between levels.

The table below shows how changes in discount rates affect the changes in the valuation of financial assets at fair value through profit or loss. The range of discount rate changes has been determined with reference to historic discount rates made by the Valuation Agent. In the period, discount rates increased from 7.51% to 7.62%.

1. Balance includes the fair value of the Co-living loan which is not valued on a discounted cash flow basis; refer above for further details.

14.4 Liquidity risk

The Directors have elected to present the liquidity disclosure table below to illustrate the net liquidity exposure of the Company. The Company ensures it maintains adequate reserves by continuously monitoring forecast and actual cash flows, matching the maturity profiles of financial assets and liabilities to ensure the Company is able to meet the obligations of the Company as they fall due. The Company is a closed-ended investment company, where assets are not required to meet day-to-day redemptions. The current cash balance plus available borrowing, through the revolving credit facility, enables the Company to meet any funding requirements and finance future investments. The table below analyses all of the Company's assets and liabilities into relevant maturity groupings based on the remaining period from 30 June 2022 to the contractual maturity date.

All cash flows in the tables below are presented on an undiscounted basis.