RMDL.L Regulatory News (RMDL)

RM SECURED DIRECT LENDING PLC

(the ''Company'' or "RMDL")

FINAL RESULTS

RESILIENT PERFORMANCE AMID CONTINUED PORTFOLIO GROWTH

REFRESHED INVESTMENT FOCUS ON SOCIAL & ENVIRONMENTAL INFRASTRUCTURE SECTORS

RMDL, the investment trust specialising in secured debt investments, announces its results for the year ended 31 December 2020.

Operational highlights

· Diversified portfolio of £122.7 million invested across 35 loans across 14 sectors

o Eight new investments totalling £26m during the year

o Close management of the portfolio throughout the pandemic

· RM Funds was recognised by the British Business Bank as an accredited lender for the Coronavirus Business Interruption Loan Scheme ("CBILS") with RMDL as a funding partner

o 12% of portfolio NAV invested into partially government guaranteed CBILS eligible loans

· Robust performance of portfolio sectors exposed to restrictions related to the coronavirus pandemic, including Accommodation with Hotels (27.6%) and Student Accommodation (12.3%)

Financial highlights

· 6.5 pence dividend for full year

· Dividend fully covered by earnings 1.1 times

· NAV total return for the period 3.15%

Outlook

· Refreshed investment focus on lending to Social & Environmental Infrastructure sectors with high-quality pipeline transactions in its six target sectors:

o Healthcare; Childcare & Education; Accommodation; Clean Energy & Renewables; Waste Management; and Energy Efficiency & Carbon Reduction

o Aligned to Sustainable Development Goals (SDGs) where capital from RMDL can make a positive impact

o Appealing risk adjusted returns with attractive credit metrics and significantly higher yields than would be available in the public markets

· Partnership with The Good Economy will provide reputable third-party assurance for ESG & Impact reporting

· Vaccine roll-out and expected easing of national restrictions will allow certain portfolio companies to return to trading at full capacity

Norman Crighton, Chairman of RMDL, commented:

"The Board is pleased to report a resilient year for RMDL amid an unprecedented market environment. This has been demonstrated through our portfolio which has continued to diversify and grow, now totalling £123m invested in 35 loans across 14 sectors. Meanwhile, our gross portfolio yield increased to c.9.3%, from c.8.8% in 2019, and we have continued to deliver on our dividend target of 6.5 pence for the year.

Our refreshed investment strategy will focus on increasing our exposure to the social and environmental sectors. Currently comprising c.30% of the portfolio, these sectors hold clear alignment to specific SDGs and will allow RMDL to meet the funding needs of quality businesses who are making a meaningful, positive contribution to society.

In addition, our partnership with The Good Economy will provide key third-party assurance for ESG and Impact reporting, which will ensure ESG-related criteria remains an integral part of our rigorous investment process. This will allow us to achieve our company purpose of delivering positive impact outcomes linked to Sustainable Development Goals, while offering stable, risk-adjusted returns for our investors.

We have entered 2021 in a strong position and a high quality pipeline of secured lending opportunities. The Board has every confidence in the long-term future of RMDL and our ability to deliver for our shareholders."

Investor webinar

An investor webinar will be held tomorrow morning at 10.00 am, hosted by James Robson (Chief Investment Officer, RM Funds) and Pietro Nicholls (Portfolio Manager, RM Funds). If you would like to join the webinar, please follow the link here.

For further information, please contact:

ANNUAL FINANCIAL REPORT

For the year ended 31 December 2020

About us

RM Secured Direct Lending Plc ("RMDL" or the "Company") aims to generate attractive and regular dividends through investment in secured debt instruments. Loans in which the Company invests will be predominantly secured against assets such as real estate or plant and machinery and/or income streams such as account receivables.

As at 31 December 2020 the portfolio was invested in 14 sectors and 19 sub-sectors of which 98% was allocated to private debt. Since inception in December 2016 to December 2020 the Company has declared or paid dividends totalling 24.225 pence and has generated a NAV total return of 21.46%.

Portfolio  at  a glance

Operational highlights

> Diversified portfolio of £122.7 million invested across 35 loans with eight new investments totalling £26m during the year

> RM Funds was accredited by the British Business Bank as an accredited lender for the Coronavirus Business Interruption Loan Scheme ("CBILS") with RMDL as a funding partner

> 11% of the portfolio invested into partially government guaranteed CBILS eligible loans

> Approximately 30% of the portfolio invested into Social & Environmental Infrastructure sectors with strong pipeline and expectation that allocations to these areas in 2021 will significantly expand

> The Good Economy engaged to provide investors with third party assurance for ESG & Impact reporting to start in 2021

> Hotel exposure representing 27% of the portfolio exposure has performed well with interest serviced throughout the lockdown

Financial highlights

> 6.5 pence dividend for full year meeting target set at IPO

> Dividend fully covered by earnings 1.1 times

> NAV total return for the year 3.15%

 Alternative Performance Measures ("APMs")

The financial information and performance summary data highlighted in the footnote to the above tables are considered to represent APMs of the Group and the Company. Definitions of these APMs together with how these measures have been calculated are disclosed in the Annual Report.

Portfolio (as at 31 December 2020)

Largest 10 loans by drawn amounts across the entire portfolio

* The Group's gross assets comprise the net asset values of the Group's Ordinary Shares, accrued capital entitlement of the ZDP Shares and the Bank loan.

† Valuation conducted by external Valuation Agent.

Market

Market environment

The year was dominated by Covid-19 as the benign and calm credit conditions, which had persisted since the eurozone debt crisis, were replaced by large volatility within the equity and credit markets during late February and into March. As the depth of government support measures became understood by the market credit spreads stabilised and by year-end were back to near pre-Covid levels. Sectors that lagged the market were those affected specifically by the pandemic such as Travel and Leisure and Hospitality. As we look into 2021, there is optimism that those sectors which underperformed during 2020 will perform with the scheduled easing of restrictions and as the vaccine roll-out continues.

Market opportunities

The Investment Manager ("RM" or "RM Funds") is seeing an excellent pipeline of opportunities within the two focus investment areas and six sectors. The business targeted typically have complex lending needs, are often overlooked by their banking relationships with funding requirements that are too small for the larger direct lending businesses yet offer excellent security and return profiles.RM funds have demonstrated the ability to originate and transact in such deals over last four years and have a developed pipeline for sourcing such transactions.

In addition, there is an attractive opportunity for credit enhancements. RM Funds is an accredited lender under the Coronavirus Business Interruption Loan Scheme ("CBILS") and RMDL is the funding partner, thus giving RMDL access to high quality loans with a material credit enhancement. CBILS provides financial support to smaller businesses ("SMEs") across the UK that are losing revenue, and seeing their cash flow disrupted, as a result of the Covid-19 outbreak. The scheme is a part of a wider package of government support for UK businesses and employees and is administered by the British Business Bank. CBILS gives the lender a partially government-backed guarantee for the loan repayments in order to encourage more lending. At year-end 12% of the portfolio had been invested into CBILS eligible loans.

Looking forward to Recovery Loan Scheme will become the new government support scheme and as with CBILS each loan comes with a partial government guarantee of a minimum of 80% of the loan balance. This scheme looks set to broaden the pipeline of opportunities as the scheme eligibility is wider and the maximum loan size will increase to £10m.

Investment Objective, Financial Information and Performance Summary

Investment Objective

RM Secured Direct Lending Plc ("the Company") aims to generate attractive and regular dividends through investment in secured debt instruments of UK Small and Medium sized Enterprises ("SMEs") and mid-market corporates and/or individuals including any loan, promissory notes, lease, bond, or preference share (such debt instruments, as further described being "Loans") sourced or originated by RM Capital Markets Limited (the "Investment Manager") with a degree of inflation protection through index-linked returns where appropriate.

Financial Information

Performance Summary

1These are Alternative Performance Measures ("APMs").

2Based on the net assets attributable to the ZDP Shares as at 31 December 2019 and 2020.

3Total returns for the year to 31 December 2020, including dividend reinvestment.

4Total returns for the year to 31 December 2019, including dividend reinvestment.

5Source: Bloomberg.

Alternative Performance Measures ("APMs")

The financial information and performance summary data highlighted in the footnote to the above tables are considered to represent APMs of the Group and the Company. Definitions of these APMs together with how these measures have been calculated can be found in the Annual Report.

Chair's Statement

Introduction

On behalf of the Board, I am pleased to present RM Secured Direct Lending plc's ("RMDL" or the "Company") Annual Report and Accounts for the year ended 31 December 2020.

This year, the fourth year since the Company launched on the London Stock Exchange in December 2016, has been the most challenging yet, but I am delighted at the resilience the portfolio has shown. It is testament to RMDL's secured lending model, and the Investment Manager's ("RM" or "RM Funds") strong credit processes and actions taken during the year, and we are pleased to confirm total dividends of 6.5 pence per Ordinary Share for the year ended 31 December 2020, with the final quarterly dividend being paid in March 2021. The dividends for 2020 are in line with the target stated at the launch of the Company, an exceptional achievement in a difficult year.

RMDL has traditionally sought to invest in high quality businesses with loans supported by tangible security packages to generate attractive risk-adjusted returns for investors. We have always adhered to the highest standards of corporate governance and expect the same from the companies we lend to. During the last four years, social and environmental infrastructure projects have been a core focus, and the Company has allocated 40% of its capital to assets in these areas.

The Board and RM Funds now plan to concentrate the investment focus to Social & Environmental Infrastructure over the next three years and only allocate loans across six sectors:

Environmental Infrastructure

· Energy efficiency & carbon reduction

· Clean energy & renewables

· Waste Management

Social Infrastructure

· Accommodation

· Education & childcare

· Healthcare

In addition to enhancing the sustainability of the portfolio, the Board and the Investment Manager believe that this new focus will give investors further exposure to critical infrastructure assets which are not correlated to the broader economic cycle. These assets will have tangible asset backing and this focus we believe will further deliver attractive risk-adjusted returns. Our firm belief is that the Company is well placed to deliver strong income returns and steady NAV growth alongside an impact and sustainability framework. For this next 3-year period we have set an Impact Goal of seeking to meet the funding needs of quality UK businesses who make a meaningful, positive contribution towards social and environmental outcomes that are linked to specific UN Sustainable Development Goals; 3, 4, 7,11, 12 & 13.

· Healthcare (3)

· Education & childcare (4)

· Clean energy & renewables (7)

· Accommodation (11)

· Waste Management (12)

· Energy efficiency & carbon reduction (13)

The investment strategy and the investment policy remain unchanged with a narrower investment sector focus.

Income generation and NAV Performance

In the four years since listing, the Company has returned to Shareholders 24.225 pence per Ordinary Share in dividends which have been entirely covered by earnings. We have been pleased to continue our track record of meeting our target income distribution and the payment of a fully covered dividend for the year ended 31 December 2020, despite the disruption caused by the pandemic. The Company has paid or declared regular dividends totalling 6.5 pence per Ordinary Share during the year. 

The ability of the Company to pay dividends in excess of target during a period when our peer group has struggled is testament to the ability of the Investment Manager to structure Loans for the benefit of Shareholders, whilst maintaining strict credit controls.

This was especially important for our investors, many of whom have seen a swathe of dividend cuts across their portfolios during the course of 2020.

On the 25 February 2021 the Company declared a fourth interim dividend for the year of 1.625 pence per Ordinary Share to be paid on the 26 March 2021, the 16th consecutive dividend paid which has met or exceeded the target set at launch.

Portfolio overview

The Board and the Investment Manager were quick to anticipate and react to the effects of the pandemic, temporarily ceasing any new lending activity and focusing on capital preservation.

However, certain investments in our portfolio were directly impacted by the lockdowns and restrictions, specifically hotel, gym and student accommodation assets, alongside childcare nurseries and healthcare businesses.

The portfolio investments are valued under IFRS 13, which adopts a "mark to market" approach, and therefore RMDL saw the NAV of the Company fall at the peak of the market sell-off in March 2020, followed by a general gradual retracement in the NAV for the final three quarters as sentiment improved and government support measures worked their way through the economy. 

Importantly, the asset values were adjusted lower to reflect the increased risk and they have not affected the Company's ability to pay a dividend nor necessarily the likelihood of any loss. RM Funds believe that these value reductions are largely temporary in nature; thus, as we have seen over the last number of months, the trajectory of the NAV has been promising and the Investment Manager will report on the key areas that they believe will continue to drive performance in 2021.

During the year the Company was accredited as a funding partner for Coronavirus Business Interruption Loan Scheme "CBILS" which is administered by the British Business Bank, owned by the UK Government. This recognises the role RMDL can play in helping high quality UK based business access funding opportunities and also offers Shareholders access to Loans underwritten by 80% minimum from the UK Government. At year end 12% of the portfolio was to be underwritten by the scheme.

The Investment Manager has an attractive pipeline of loans to businesses into Social & Environmental Infrastructure which will see a relatively rapid recycling of capital into these focus sectors. There is a real opportunity to see the portfolio and the Company grow over the near to medium term as we try to match capital seeking sustainable investments delivering high impact with the borrowers seeking capital. I am delighted that we have been able to partner with the Good Economy to provide an independent reporting and assurance of the impact measurement system which the Company will be adopting.

 Carefully managed credit risk and valuations

As outlined in previous years credit risk is the most important risk factor within the portfolio. This is managed carefully by the Investment Manager, the Alternative Investment Fund Manager ("AIFM") and overseen by the Board. Exposure is mitigated by having clear borrower/issuer risk limits and industry risk limits which are detailed in the Company's prospectus. These limits reflect a maximum borrower/issuer limit of 10% of the portfolio and are across a range of sectors to ensure sufficient sector diversity.

Committed to responsible investing

The Board and the Investment Manager have long been committed to high ESG standards and to responsible investing. The refreshed investment focus towards social and environmental infrastructure sectors enhances this commitment through investment in assets at the forefront of providing essential services to society. RM Funds' Responsible Investing Investment Policy ensures that these considerations are integrated into each individual investment process and the alignment of the portfolio to achieving contributions towards outcomes linked to UN Sustainable Development Goals 3,4,7,11,12&13. As we look to the future the Good Economy will assist with the ESG reporting metrics for the portfolio as we strive to improve our borrower performances across core ESG Practices.

Returns to Shareholders

As at 31 December 2020, the Company had generated a NAV total return for the year of +3.1% (dividends re-invested at NAV) and since inception the NAV total return for investors has been +21.5%. The share price total return was -5.3% for the year and +10.2% since inception.

Historically RMDL had always traded at a premium to NAV, however as the pandemic took hold the share price fell to a discount to NAV. The Board and RM Funds have taken a number of steps to reduce this discount, which has been one of the drivers of the share price total return for the year. During 2020, RMDL acquired 3.86 million shares as part of share buy backs and it has been encouraging that this discount has reduced over the year since the levels seen in March 2020. The lowest price paid was 72.5 pence per Ordinary Share on the 7 April 2020 and the highest price 85.0 pence per Ordinary Share on the 30 December 2020. Both the Investment Manager and the Board are focused on restoring the share price to NAV rating to a premium again.

ESG Leadership for the Company, as well as for the Portfolio

I have outlined above some of the changes the Investment Manager and the Board intend to make to the loan portfolio. The reasons for these changes and the greater emphasis on ESG issues are addressed in more detail in the Investment Manager's Report. However, there is no doubt that factors represented by these three letters will be playing an increasingly crucial role in all decision making, whether operational or investment, for corporates and individuals alike. In terms of corporate governance, the G in ESG, your Company has adopted the very highest standards from the start, with measures in place to prevent value destruction caused by wide discounts to NAV, and directly aligning the interests of the Investment Manager with Shareholders, among other approaches.

Going forward, the Board will be turning its attention to the E and S factors, ensuring that your Company remains at the vanguard of putting these criteria at the core of what we do. RMDL, like every other investment trust with no premises and no employees, can have a limited direct effect on E and S issues. However, your Board believes that you as Shareholders, our most important stakeholders, expect more from us as Directors. We therefore intend to take an increasingly proactive approach and encourage our stakeholders to focus on their own mitigation strategies. We will start by asking all of RMDL's counterparties - the investment manager, broker, administrator, legal team, accountants and auditors, as well as major Shareholders and others, two questions:

(1) What ESG policies are implemented within your own organisation? and

(2) What ESG policies do you expect your stakeholders to follow?

The responses are likely to range from the very straightforward, "We recycle paper in the office" or "We buy electricity from renewable sources", to the more nuanced; "We use carbon offsets to mitigate business air travel made on behalf of our clients", which might lead us to ask, "How do you calculate the most efficient offset program?" We might ask our Shareholders what additional cost they would be willing to incur to ensure RMDL's stakeholders adopt improved ESG measures, if indeed there are additional costs? The information collected will form the basis of a full understanding of these priorities within the investment trust community. Although participation will be entirely voluntary, we anticipate a high level of engagement. Your Board will review the results, share them with the respondents and with refinements over time, develop them into a comprehensive Investment Trust ESG Policy. We are very excited to be launching this initiative and hope to have the first set of responses to share with you in the next Interim Report in six months' time.

Realisation opportunity

At the launch of the Company there was a commitment made to offer Shareholders a Liquidity Opportunity prior to the 4th AGM which will be held this year. The original intention was, if the investment objective was not achievable, that Shareholders be given the opportunity to realise their investment at close to the prevailing NAV. I am very pleased that despite a difficult year, the income objectives of the Company have been exceeded. Nonetheless, we will be canvassing Shareholders in the coming weeks to talk through their liquidity needs and structure a set of proposals that is suitable and cost effective. I sincerely hope that demand will be limited given the performance of the Company over the last few years.

Outlook

The outlook is very promising, mainly due to the COVID-19 vaccine which is being rolled out at pace. Any easing of lock-down restrictions allowing portfolio companies to start trading to their full capacity is clearly good news and one which should then have positive follow-on effects with the Company NAV and the share price.

The Board and RM Funds are excited about the future and the refreshed investment focus. These sectors offer investors appealing risk adjusted returns that all have attractive credit metrics and significantly higher yields than would be available in the public markets and are especially appealing as the credit cycle becomes stretched by Government support actions which one day will end.

The Investment Manager has noted they are seeing large increases in the volume of high-quality pipeline transactions in its target sectors, ensuring the Company is in the fortunate position of being fully deployed and needing more capital to grow. 

The Board is focused on continuing to grow the portfolio of investments, and with this new concentrated focus and the deep pipeline of opportunities which the Investment Manager is pursuing, this is eminently achievable. This is a key objective for the next three years as well as continuing to distribute an attractive income and maintain and grow the NAV.

Norman CrightonChair26 March 2021

Investment Manager's Report

Strong and sustainable NAV & Income performance

Over the course of the year, the portfolio generated a NAV total return of +3.1%, with total dividend distributions attributable to Shareholders for the year totalling 6.5 pence per Ordinary Share. Following the year end an interim dividend relating to the final quarter of the year of 1.625p per Ordinary Share was declared on 25 February 2021 and paid to Shareholders on the 26 March 2021. These dividends totalling 6.5 pence per Ordinary Share for full year 2020 bring the total distributions since the Company's launch in December 2016 to 24.225 pence per share, exceeding the 23.5 pence targeted over the first four years by the Investment Manager.

Resilient portfolio performance

The year ended 31 December 2020 was extremely challenging for the portfolio with the COVID-19 pandemic causing disruption both to the demand and supply side of the economy.

The Investment Manager, in conjunction with the Board, made the immediate decision to cease new lending in early March 2020 with all focus from the Investment Manager on ensuring the portfolio performed through the second and third quarters whilst awaiting news on the vaccine development. It is a testament to the credit processes, the lending model and portfolio companies themselves that the main RMDL loans were serviced through this period.

Investments within Asset Finance, Healthcare and Food Sectors have delivered robust returns throughout the year however the largest portfolio exposure is to Accommodation with Hotels (27.6%) and Student Accommodation (12.3%) investments, which were adversely affected by the national restrictions during the year. Despite the significant challenges, these Loans have generally performed well.

Total income generation for the year was £10.9 million and this was split between cash pay and PIK 82.5%. At the year end, the loan portfolio had £122.7 million (2019: £131.2 million) of investments across 35 Loans (2019: 34) well diversified by borrower and sector with investments predominantly completed within the UK.

There were eight new investments and a number of repayments and divestments that totalled £34.6 million during the year, demonstrating the successful execution of the business strategy, as the Company has resumed making loans, receiving interest and has been successfully repaid by borrowers. Overall, the gross portfolio yield increased to 9.37% as of 31 December 2020 (2019: 8.84%).

The portfolio is focused on private debt which as at 31 December 2020 represented 98% of the portfolio and we favour this asset class as the Investment Manager can document investor protections in the form of loan covenants and receive an illiquidity premium offering an enhanced yield to investors than those available in the public markets.

The portfolio is focused on defensive sectors with tangible asset backing giving high levels of protection should there be an economic downturn. Loan to value ("LTV") is limited with a blended leverage averaging 68.3% across the portfolio. 46.8% of the portfolio is either senior secured or CBILS guaranteed to give enhanced downside protection. Construction risk has increased to (two) loans totalling £8.3 million which is within the 20% of Gross Assets construction limit.

There are four investments within the portfolio that have enhanced monitoring and have opportunity for delivering NAV growth during 2021:

1. Energie Fitness. An investment in the senior loan (and equity participation) to this gym franchise business. RMDL participated in a management buyout during 2020 and owns a net 28% of the business. This loan has been marked at 85% of nominal value and reflects at this valuation 5.85% of the Companies assets. The company is well positioned to trade strongly when the lockdowns ease. The value of the equity is marked at zero.

2. Hotel Development Glasgow. The Company has funded a hotel development in Glasgow which is now nearing completion - this borrower has a 5* operator Hotel Management Agreement "HMA" in place and the scheme is scheduled to be finished later in 2021. These two loans represent 6.7% of net Company assets at their current valuation with one loan of £3.35million marked at 73% of nominal value which is expected to move towards 100% of face value as the development is finished over the course of 2021. 

3. Purpose Built Student Accommodation "PBSA" Coventry. An investment into a senior secured PBSA asset representing 4.53% of net Company assets valued at 81.5% of nominal value. Initially a project finance construction loan to a building completed in March 2020 at the height of the COVID-19 first wave. Post March 2020 the borrower did not provide a suitable recovery plan given the building had not been occupied and RM Funds appointed an administrator. It is expected that RMDL will own this asset after the administration process. An operator for the building has been identified with students expected to occupy the building during 2021 which will enhance the value of the asset and start generating income for the portfolio thus creating two drivers of value over the course of this year.

4. Automotive Parts. This well-managed business with a high-quality sponsor responded swiftly to the initial factory close downs and the subsequent start-ups. The loan represents 6.16% of net Company assets and at the Company's year-end was valued at 85% of par value. The loan was documented at the outset to allow flexibility between the borrower paying their interest in cash or payment in kind "PIK" for situations such as these where demand might be slower than forecast. The valuation on this loan have been lowered to reflect the increase in risk from the current operating environment, however the strong fundamentals and as the economy starts to move out of the Q1 2021 lockdowns and the business starts to function more normally this valuation will likely be revised higher.

Coronavirus Business Interruption Loan Scheme ("CBILS")

This scheme was introduced by the British Government, is administered by the British Business Bank and was designed to provide support to corporates affected by the pandemic. The support is via partial loan guarantees made to accredited lenders which assists affected corporates with obtaining debt finance. The key features are that the UK Government provides a minimum 80% guarantee to eligible loans of sizes up to £5 million and in addition, the UK Government pays the first year's interest in the form of Business Interruption Payment ("BIP"). RM Funds was accredited as a funder under the scheme and RMDL was designated as a funding partner. As at the year-end 12.0% of the portfolio was invested into CBILS eligible loans. This is material credit enhancement for the portfolio.

Market environment

Credit spreads dramatically increased in March 2020 meaning valuations on High Yield bonds and Leverage Loans were significantly lower at the end of the month. The external valuation agent uses these securities as pricing benchmarks for the monthly valuations of the level 2 assets(liquid) held by the Company and more widely when assessing the current value of the level 3 assets(illiquid). March 2020 saw a NAV total return of -10.5% due to this broader increase in credit spreads. This negative move was subsequently followed by month on month increases as the wider credit markets normalised leading to a +3.1% NAV total return for the full year. Whilst this NAV was more volatile than RMDL would typically expect it is important to note that it did not affect the ability of the Company to pay the planned dividends.

Responsible Investing

RM Funds is a signatory to the Principles for Responsible Investment ("PRI"). The PRI defines responsible investment as a strategy and practice to incorporate environmental, social and governance factors in investment decisions. RM Funds incorporates ESG criteria early on as part of the investment process and in addition there is active engagement wherever possible with portfolio companies to help them improve their ESG processes. In practice this is delivered by the RM Funds Responsible Investing Investment Policy which is integral to RM's business philosophy as we believe we can make a difference. This policy framework applies to all investment made by RM Funds and is governed by our principles and our commitments:

Our principles

Respect for the internationally proclaimed human rights principles, equal opportunity independent of gender, race or religion; freedom of association and the right to bargain collectively; working conditions that surpass basic health and safety standards; the conduct of good governance practices, in particular in relation to bribery and conflicts of interest; environmental responsibility and responsibility for active climate change engagement.

Our commitments

Integrate the above principles into our decision-making process, by carefully considering ESG issues associated with any potential investment during the due diligence phase; encourage portfolio companies to follow the above principles by implementing governance structures that provide appropriate level of oversight and by seeking disclosure on ESG issues; provide ESG training and support to RM employees involved in the investment process, so that they may perform their work in accordance with the above principles and with this policy; seek to be transparent in its efforts to integrate ESG considerations in investments and annually report on its progress towards implementing the above principles, comply with national and other applicable laws; help promote the implementation of the above principles; consider our alignment with other related conventions and standards set by Invest Europe, the UN Global Compact Initiative and the UN Principles for Responsible Investment); continuously strive to improve ESG performance within RM Funds and our portfolio companies.

Investment Manager aligned to investor interests

In line with the commitment to investors made at the IPO, RM Funds has continued to purchase shares of the Company during the year. The Investment Manager now owns 1,249,825 Ordinary Shares which is an increase of 50,000 shares over the year; the management team and related parties' own additional shares. Since IPO the Investment Manager has purchased 749,825 shares directly in the secondary market. This is an ongoing commitment and by purchasing RMDL shares, the Investment Manager has shown a significant alignment of its interests with Shareholders.

Share price performance

The share price performance of the Company over the year has been disappointing which was principally driven by the share price discount to NAV widening during the March COVID-19 related sell-off. This discount remained above the target level of 6.0% for much of the year. The Board and the Investment Manager are focused on reducing the discount to below the target level and took steps to make selective share purchases in order to provide liquidity into the market and assist Shareholders who were seeking to sell. At the year end the share price to NAV discount was at 6.9% and post year-end it reduced below the target 6.0% level.

Robust outlook for 2021

In the annual report for the year ended 31 December 2019, RM noted that opportunities supported by major structural or socio-demographic drivers will be the most significant areas of opportunity for RMDL. 

We still believe this to be the case and over the short and medium term we will further focus our efforts on capital deployment to the key areas of Social & Environmental Infrastructure. Historically approximately 40% of RMDL's capital has been allocated to these two areas. In addition, these areas align to sustainable development goals where capital from RMDL can make an impact. RM Funds has been working with The Good Economy, a leading social advisory firm, who have helped design an impact measurement and management framework.

The Investment Objective and the Investment Policy will remain the same however going forward all new capital will be allocated to the following six sectors:

Social Infrastructure

• Healthcare

• Childcare and Education

• Accommodation

Environmental Infrastructure

• Clean Energy & Renewables

• Waste Management

• Energy Efficiency & Carbon reduction

The Good Economy will be retained to provide an annual external ESG & Impact report for investors.

RM Capital Markets Limited 26 March 2021

Investment Policy, Results and Other Information

Investment objective

The Company aims to generate attractive and regular dividends through investment in secured debt instruments of UK SMEs and mid-market corporates and/or individuals including any loan, promissory notes, lease, bond, or preference share (such debt instruments, as further described below, being "Loans") sourced or originated by the Investment Manager with a degree of inflation protection through index-linked returns where appropriate.

Investment policy

The Company will seek to meet its investment objective by making investments in a diversified portfolio of Loans to UK SMEs and mid-market corporates, special purpose vehicles and/or to individuals. These Loans will generally be, but not limited to, senior, subordinated, unitranche and mezzanine debt instruments, documented as loans, notes, leases, bonds or convertible bonds. Such Loans shall typically have a life of 2-10 years. In certain limited cases, Loans in which the Company invests may have equity instruments attached, ordinarily any such equity interests would come in the form of warrants or options attached to a Loan. Typically the Loans will have coupons which may be fixed, index-linked or LIBOR linked.

For the purposes of this investment policy, UK SMEs include entities incorporated outside of the UK provided their assets and/ or principal operations are within the UK. The Company is permitted to make investments outside of the UK to mid-market corporates.

Loans will be directly originated or sourced by the Investment Manager who will not invest in Loans sourced via or participations through, peer to peer lending platforms.

Loans in which the Company invests will be predominantly secured against assets such as real estate or plant and machinery and/or income streams such as account receivables.

The Company will make Loans to borrowers in a range of Market Sectors within certain exposure limits which will vary from time to time, according to market conditions and as determined by the Board, subject to the Investment Restrictions set out below.

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

Investment restrictions

The following investment limits and restrictions will apply to the Company's Loans and business which, where appropriate, shall be measured at the time of investment or once the Company is fully invested:

• the amount of no single Loan shall exceed 10% of Gross Assets;

• exposure to a single borrower shall not exceed 10% of Gross Assets;

• loans will be made across not less than four Market Sectors;

• not less than 70% of Gross Assets will be represented by Loans denominated in sterling or hedged back to sterling;

• loans made to borrowers in any one Market Sector shall not exceed 40% of Gross Assets;

• loans with exposure to project development/construction assets shall not exceed 20% of Gross Assets;

• the Company will not provide Loans to borrowers whose principal business is defence, weapons, munitions or gambling;

• the Company will not provide Loans to borrowers which generate their annual turnover predominantly from tobacco, alcohol or pornography; and

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

In the event of a breach of the investment guidelines and restrictions set out above, the Investment Manager shall inform the Board upon becoming aware of the same and if the Board considers the breach to be material, notification will be made to a Regulatory Information Service and the Investment Manager will look to resolve the breach with the agreement of the Board.

The Company intends to conduct its affairs so as to qualify as an investment trust for the purposes of section 1158 of the Corporation Tax Act 2010, and its investment activities will therefore be subject to the restrictions set out above.

Borrowing and gearing

The Company intends to utilise borrowings for investment purposes as well as for share buybacks and short-term liquidity purposes. Gearing represented by borrowings, including any obligations owed by the Company in respect of an issue of zero dividend preference shares (whether issued by the Company or any other member of its group) or any third-party borrowings, will not, in aggregate exceed 20 per cent. of Net Asset Value calculated at the time of drawdown.

 Hedging and derivatives

The Company may invest in derivatives for efficient portfolio management purposes. In particular the Company can engage in interest rate hedging. Loans will primarily be denominated in sterling, however the Company may make limited Loans denominated in currencies other than sterling and the Board, at the recommendation of the Investment Manager, may look to hedge any other currency back to sterling should they see fit.

In accordance with the requirements of the UK Listing Authority, any material change to the Company's investment policy will require the approval of Shareholders by way of an ordinary resolution at a general meeting.

RM ZDP plc

RM ZDP plc ("RM ZDP"), a public limited company incorporated under the laws of England and Wales was incorporated on 21 February 2018. RM ZDP is a wholly owned subsidiary of the Company. RM ZDP was established solely for the purpose of issuing zero dividend preference shares of GBP 0.01 each ("ZDP Shares").

On 3 April 2018, RM ZDP was admitted to the standard segment of the Official List of the UK Listing Authority and its ZDP Shares were admitted to trading on the London Stock Exchange's main market for listed securities. The proceeds from the issuance of the ZDP Shares have been loaned to the Company by way of an intercompany loan agreement (the "Loan Agreement"). The Company also granted RM ZDP an undertaking to ensure that RM ZDP has sufficient assets to satisfy its obligations to the ZDP Shareholders and pay any operational costs incurred by RM ZDP.

RM ZDP raised gross proceeds of £10,869,950 through the issue of ZDP Shares.

The Board intend that RM ZDP plc be put into voluntarily liquidation through a General Meeting on 6 April 2021, for the purpose of proposing a resolution to wind up the ZDP Subsidiary voluntarily, with the assets of the RM ZDP then available for distribution.

Dividend policy

Dividends are expected to be declared by the Directors in May, August, November and February of each year in respect of the preceding quarter with dividends being paid in June, September, December and March.

The last dividend in respect of any financial year is declared prior to the relevant annual general meeting. Therefore, it is declared as a fourth interim dividend and no final dividend is payable. The Board understands that this means that Shareholders will not be given the opportunity to vote on the payment of a final dividend. However, the Board believe that the payment of a fourth interim dividend as opposed to a final dividend is in the best interests of Shareholders as it provides them with regularity on the frequency of dividend payments and avoids the delay to payment which would result from the declaration of a final dividend. A resolution will be put forward at the Annual General Meeting to approve the policy of declaring and paying all dividends of the Company as interim dividends.

The Company targeted an annualised dividend yield in excess of 6.5% for the financial year to 31 December 2020.

Investors should note that the targeted annualised dividend yields are targets only and not profit forecasts and there can be no assurance that either will be met or that any dividend growth will be achieved.

Results and dividend

The consolidated financial statements include the results of the Company and its subsidiary RM ZDP plc (the "Group"). The Group revenue return after tax for the year ended 31 December 2020 amounted to £7,108,000 (2019: £9,816,000). The Group made a capital loss after tax of £5,251,000 (2019: capital loss of £1,288,000). Therefore, the total return after tax for the Group was £1,857,000 (2019: £8,528,000).

The first interim dividend of 1.625p per Ordinary Share was declared on 20 April 2020 in respect of the period from January to March 2020. The second interim dividend of 1.625p per Ordinary Share for the quarter ended 30 June 2020 was declared on 5 August 2020 and the third interim dividend of 1.625p per Ordinary Share for the quarter ended 30 September 2020 was declared on 2 November 2020. On 25 February 2021, the Board declared a fourth interim dividend of 1.625 pence per Ordinary Share for the quarter to 31 December 2020.

Key performance indicators ("KPIs")

The Board measures the Group's success in attaining its investment objective by reference to the following KPIs:

(i) Dividends

The Group has paid or proposed four interim dividends totalling, in aggregate, 6.5 pence per Ordinary Share, equivalent to 6.5% based on the Ordinary Share issue price of £1 per share at Admission. The targeted annualised dividend yield of 6.5% has therefore been met during the year.

(ii) Total return

The Group's total return is monitored by the Board. The Ordinary Shares generated a NAV total return of +3.1% (2019: +8.2%) in the year ended 31 December 2020.

(iii) Discount/premium to NAV

The discount/premium relative to the NAV per share represented by the share price is closely monitored by the Board. The Ordinary Share price closed at a 6.7% discount (2019: premium of 1.7%) to the NAV as at 31 December 2020. To address the abnormally wide discount due to the impact of COVID-19 in 2020, 3.86 million shares were bought back during the year at prices ranging from 72.5 pence and 85 pence per shares. This added 0.422 pence per Ordinary Share to the NAV.

(iv) Control of the level of ongoing charges

The Board monitors the Group's operating costs. Based on the Group's average net assets for the year ended 31 December 2020, the Group's ongoing charges figure calculated in accordance with the AIC methodology was 1.91% (2019: 1.77%).

Risks and Risk Management

The Board is responsible for the management of risks faced by the Company and delegates this role to the Audit and Management Engagement Committee (the "Committee"). The Committee periodically carries out a robust assessment of principal and emerging risks and uncertainties and monitors the risks on an ongoing basis. The experience and knowledge of the Board is invaluable to these discussions, as is advice received from the Board's service providers, specifically the AIFM who is responsible for the risk and portfolio management services and outsources the portfolio management to the Investment Manager. The Committee has a dynamic risk assessment programme in place to help identify key risks in the business and oversee the effectiveness of internal controls and processes, providing a visual reflection of the Company's identified principal and emerging risks.

During the year, the Committee were particularly concerned with the risks posed by the COVID-19 pandemic which has had a significant impact in all risk categories. In addition to implementing more regular reviews of investment performance with the Investment Manager, the Committee requested and received assurances from its key service providers that they would be able to maintain high standards of service whilst working remotely. Further information on how the Committee has considered COVID-19 when assessing its effect on the Company's ability to operate as a going concern and the Company's longer-term viability.

The principal and emerging risks, together with a summary of the processes and internal controls used to manage and mitigate risks where possible are outlined in the following paragraphs.

(i) Market risks

Availability of appropriate investments

There is no guarantee that loans will be made in a timely manner.

Before the Group is able to make or acquire loans, the Investment Manager is required to complete necessary due diligence and enter into appropriate legal documentation. In addition, the Group may become subject to competition in sourcing and making investments. Some of the Group's competitors may have greater financial, technical and marketing resources or a lower cost of capital and the Group may not be able to compete successfully for investments. Competition for investments may lead to the available interest coupon on investments decreasing, which may further limit the Group's ability to generate its desired returns.

If the Investment Manager is not able to source a sufficient number of suitable investments within a reasonable time frame whether by reason of lack of demand, competition or otherwise, a greater proportion of the Group's assets will be held in cash for longer than anticipated and the Group's ability to achieve its investment objective will be adversely affected. To the extent that any investments to which the Group is exposed prepay, mature or are sold it will seek to reinvest such proceeds in further investments in accordance with the Group's investment policy.

Market sectors

Loans will be made to borrowers that operate in different market sectors each of which will have risks that are specific to that particular market sector.

Management of risks

The Group has appointed an experienced Investment Manager who directly sources loans. The Group is investing in a wide range of loan types and sectors and therefore benefits from diversification. Investment restrictions are relatively flexible giving the advisor ability to take advantage of diverse loan opportunities.

The Investment Manager, AIFM, Brokers and the Board review market conditions on an ongoing basis.

(ii) Risks associated with meeting the Group's investment objective or target dividend yield

The Group's investment objective is to generate attractive and regular dividends through investment in loans sourced or originated by the Investment Manager and to generate capital appreciation by virtue of the fact that the returns on some loans will be index-linked. The declaration, payment and amount of any future dividends by the Group will be subject to the discretion of the Directors and will depend upon, amongst other things, the Group successfully pursuing the investment policy and the Group's earnings, financial position, cash requirements, level and rate of borrowings and availability of profit, as well the provisions of relevant laws or generally accepted accounting principles from time to time.

Management of risks

The Investment Manager has a well-defined investment policy and process which is regularly and rigorously reviewed by the independent Board of Directors and performance is reviewed at quarterly Board meetings. The Investment Manager is experienced and employs its expertise in making investments in a diversified portfolio of loans. The Investment Manager has a target portfolio yield which covers the level of dividend targeted by the Group. The Board reviews the position at board meetings.

(iii) Financial risks

The Group's investment activities expose it to a variety of financial risks which include liquidity, currency, leverage, interest rate and credit risks.

Further details on financial risks and the management of those risks can be found in note 21 to the financial statements.

(iv) Corporate governance and internal control risks (including cyber security)

The Group has no employees, and the Directors have all been appointed on a non-executive basis. The Group must therefore rely upon the performance of third-party service providers to perform its executive functions. In particular, the AIFM, the Investment Manager, the Administrator, the Group Secretary and the Registrar, will perform services that are integral to the Group's operations and financial performance.

Poor performance of the above service providers could lead to various consequences including the loss of the Group's assets, inadequate returns to Shareholders and loss of investment trust status. Cyber security risks could lead to breaches of confidentiality, loss of data records and inability to make investment decisions.

Management of risks

Each of the above contracts was entered into after full and proper consideration of the quality and cost of services offered, including the financial control systems in operation in so far as they relate to the affairs of the Group. All of the above services are subject to ongoing oversight of the Board and the performance of the principal service providers is reviewed on a regular basis. The Group's key service providers report periodically to the Board on their procedures to mitigate cyber security risks.

(v) Regulatory risks

The Group and its operations are subject to laws and regulations enacted by national and local governments and government policy. Compliance with, and monitoring of, applicable laws and regulations may be difficult, time consuming and costly. Any change in the laws, regulations and/or government policy affecting the Group or any changes to current accountancy regulations and practice in the UK may have a material adverse effect on the ability of the Group to successfully pursue its investment policy and meet its investment objective and/or on the value of the Group and the shares. In such event, the performance of the Group, the Net Asset Value, the Group's earnings and returns to Shareholders may be materially adversely affected.

Management of risks

The Group has contracted out relevant services to appropriately qualified professionals. The Secretary and AIFM report on compliance matters to the Board on a quarterly basis and the Board has access to the advice of its Corporate Broker on a continuing basis. The assessment of regulatory risks forms part of the Board's risk assessment programme.

(vi) Business interruption, repayment of RM ZDP loan and the Shareholders liquidity opportunity -emerging risks

Failure in services provided by key service providers, meaning information is not processed correctly or in a timely manner, resulting in regulatory investigation or financial loss, failure of trade settlement, or potential loss of investment trust status.

The following is a description of the emerging risks that each service provider highlights to the Board on a regular basis to aid in the identification of emerging risks for the Company.

1. Investment Manager: the Investment Manager provides a report to the Board at least quarterly on industry trends, insight to future challenges in the sector, including the regulatory, political and economic changes likely to impact the Group. The Chair also has contact with the Investment Manager on a regular basis to discuss any pertinent issues;

2. Alternative Investment Fund Manager: the AIFM maintains a register of identified risks including emerging risks likely to impact the Company, which is updated quarterly following discussions with the Investment Manager other service providers. The risks are documented on a risk register, grouped in main categories: Market Risks; Risks associated with Investment Objective; Financial Risks; Corporate Governance Risks; Regulatory Risks and Emerging Risks. Any changes and amendments to the risk register are highlighted to the Board on a quarterly basis;

3. Brokers: provide advice periodically, specific to the Company on the Company's sector, competitors and the investment company market whilst working with the Board and Investment Manager to communicate with Shareholders;

4. Company Secretary and Auditor: briefs the Board on forthcoming legislation and regulatory change that might impact on the Company. The Auditor also has specific briefings at least annually;

5. AIC: the Company is a member of the AIC, which provides regular technical updates as well as drawing members' attention to forthcoming industry and regulatory issues.

The COVID-19 pandemic was identified as a risk early in the year. Its impact has been significant with restrictions to movement of people and disruption to business operations impacting global portfolio company valuations and returns and potentially impacting the operational resilience of the Company's service providers. The impact of COVID-19 on the markets and the Company's financial position are closely monitored by the Investment Manager's report and the Board. Please refer to the Chair's statements and Investment Manager for their assessment and effects it had on valuations, performance and the Company's plans going forward.

The Board intend that RM ZDP plc be put into voluntarily liquidation through a General Meeting on 6 April 2021, for the purpose of proposing a resolution to wind up the ZDP Subsidiary voluntarily, with the assets of the RM ZDP then available for distribution.

On a winding up of the ZDP Subsidiary voluntarily, the assets of the ZDP Subsidiary are available for distribution to ZDP Shareholders, in accordance with the Companies Act and shall be applied as follows:

· There shall be payment to holders of the ZDP Shares an amount equal to the initial capital entitlement of 100 pence as increased at such rate as accrues daily and compounds annually to give an entitlement to 110.91 pence on the ZDP repayment date of 6 April 2021; and

· There shall be payment to the holders of the Ordinary Shares the balance of the assets of the ZDP Subsidiary available for distribution in accordance with the Companies Act and the Articles of Association. With the entitlements of holders of ZDP Shares being rounded down to the nearest whole penny.

The Company will put forward proposals to Shareholders before the Company's fourth Annual General Meeting to realise the value of their Ordinary Shares at or near the prevailing Net Asset Value per Ordinary Share less costs before the Company's fourth Annual General Meeting on 8 June 2021. Shareholders should note that due to the nature of the assets held by the Company, any realisation is expected to take an extended period of time. The risk is that this liquidity opportunity to the Shareholders will reduce the Company to a size whereby it is not viable to operate.

Management of risks

Each service provider has business continuity policies and procedures in place to ensure that they are able to meet the Company's needs and all breaches of any nature are reported to the Board.

The Board regularly reviews the Company's risk matrix, focussing on risk mitigation and ensuring that the appropriate controls are in place. Regular review ensures that the Group operates in line with the risk management policy, prospectus and investment strategy. Emerging risks are actively discussed throughout the year to ensure that risks are identified and managed so far as practicable. The experience and knowledge of the Board is invaluable to these discussions, as is advice received from the Board's service providers.

Due to the COVID-19 pandemic and the restrictions on gatherings and travel introduced by the UK Government, the Audit and Management Engagement Committee requested assurances from the Company's key service providers that business continuity plans had been enacted where necessary, with service providers enabling remote working arrangements. This provided a satisfactory level of assurance that there had not been, and there was no anticipation of any disruption to service quality.

Details of the Directors' assessment of repayment of the RM ZDP Loan, the liquidity opportunity of Shareholders and the adequacy of the Company's resources are disclosed in the Annual Report.

Statement of Directors' Responsibilities

The Directors are responsible for preparing the consolidated financial statements in accordance with applicable laws and regulations.

Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have elected to prepare the group and parent company financial statements in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006.

Under the Financial Conduct Authority's Disclosure Guidance and Transparency Rules, group financial statements are required to be prepared in accordance with international financial reporting standards (IFRSs) adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union.

Under company law, the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group during and as at the end of the year. In preparing these financial statements, the Directors are required to:

• select suitable accounting policies and then apply them consistently;

• make judgements and estimates, which are reasonable and prudent;

• present information including accounting policies and additional disclosures as required to ensure the report is presented in a manner that provides relevant, reliable, comparable and understandable information;

• state whether international accounting standards in conformity with the requirements of the Companies Act 2006 and international financial reporting standards adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union have been followed, subject to any material departures disclosed and explained in the financial statements; and

• prepare the consolidated financial statements on a going concern basis unless it is inappropriate to presume that the Group will continue in business.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group's transactions and which disclose with reasonable accuracy at any time the financial position of the Group and enable them to ensure that the accounts comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The accounts are published on the Group's website at https://rmdl.co.uk/ which is maintained by the Group's Investment Manager. The work carried out by the auditors does not involve consideration of the maintenance and integrity of these websites and, accordingly, the auditors accept no responsibility for the website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Directors' confirmation statement

The Directors each confirm to the best of their knowledge that:

(a) the accounts, prepared in accordance with applicable accounting standards, give a true and fair view of the assets, liabilities, financial position and profit of the Group; and

(b) this Annual Report includes a fair review of the development and performance of the business and position of the Group, together with a description of the principal risks and uncertainties that it faces.

The Directors consider that the consolidated financial statements taken as a whole is fair, balanced and understandable and provides the information necessary for Shareholders to assess the Group's performance, business model and strategy.

For and on behalf of the Board

Norman CrightonChair26 March 2021

The financial statements of the Group were approved and authorised for issue by the Board of Directors on 26 March 2021 and signed on their behalf by:

Norman Crighton

Chair

The financial statements of the Company were approved and authorised for issue by the Board of Directors on 26 March 2021 and signed on their behalf by:

Norman Crighton

Chair

Changes in financing liabilities

At the year end, the Company had one unquoted investment in Esprit Holdco Limited (Energie Fitness). The Company participated in a management buyout during 2020 and owns 28% of the business, the registered office and principal of business of Energie Fitness is 1 Pitfield Kiln Farm, Milton Keynes, United Kingdom, MK11 3LW. The Investment Manager valued holdings in Energie Fitness at nil.

The equity investment in Energie Fitness meets the criteria within IFRS 10 as an investment entity and therefore held at fair value.